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Merlin sparkles after poor spell, eyes rooms for growth
Legoland park and Sea Life centre operator Merlin Entertainment reported an improvement in revenues and profits despite a year affected by UK terror attacks.
Earnings before interest, tax, depreciation and amortisation of £474m was generated in the 52 weeks ended 30 December, up 9.5% on the prior year or 3.5% ahead if excluding currency effects. Revenues rose 11.6% at £1.6bn, or 6.6% at constant currencies and 1.0% on a like-for-like basis.
Profit before tax rose 4.7% to £271m and adjusted earnings per share by 5.5% to 20.5p. The dividend was lifted 4.2% to 7.4p.
Looking to 2018, the FTSE 250 company - the world's second largest theme park and visitor attraction operator - has begun taking a new approach to capital investment, which saw only six Midway attractions opened in the year, with more cash to be put into adding accommodation to its theme parks.
Last year 383 accommodation rooms were opened at three of its seven Legoland sites and at Alton Towers, with 644 expected to open in 2018. Average annual capex is to be in the range of £70-80m in the medium term.
There will still be investment in Midway, with annual capex of £60-70m and nine attractions scheduled to open in 2018, weighted towards the second half of the year, including the launch of 'The Bear Grylls Adventure' and a 'Peppa Pig' park.
Chief executive Nick Varney said: "A year that started well with positive momentum in almost every part of the Group was ultimately defined by the unprecedented spate of terror attacks in the UK and poor to extreme weather throughout the summer season in Europe. Despite this, thanks to the efforts of our extraordinary team, we have reported overall growth in revenue, profit and cash flow, welcoming 66 million visitors - our highest on record."
After good strategic progress last year, including the beginnings of its new move into accommodation expansion, six new Midway attractions, a new Legoland park in Japan and confirmation of plans to open Legoland New York in 2020, he said: "Merlin continues to evolve and, with attractive market fundamentals and the right strategy in place, we remain highly confident in the long term prospects for the business."
Discussions were said to be ongoing regarding partner funding of Legoland Korea and tentative agreements were in place regarding a "number of opportunities" in China.
Trading at this seasonally quiet point has been in line with expectations, meaning expectations for 2018 are unchanged.
Shares were up 12% to 380.9p on Thursday afternoon.
Broker Numis said the results were in line with revised expectations. Consensus estimates currently factor in 1.2% LFL sales growth for the group in 2018 and a 0.9% decline for Midway.
"While there may be some trimming of the latter, the exit rate from [Legoland Parks and Resort Theme Parks] was better than expected."
On valuation, analysts noted that MERL has derated materially over the last 12m from a forward p/e ratio of 20.2 to 16.6 times, close to its IPO price not withstanding 25% EPS growth since 2013.
"We remain positive on the structural growth prospects and see a compelling buying opportunity."
Analyst Henry Croft at Accendo Markets said the release had sparked renewed optimism that the company is directing attention to the right areas of the business to inspire growth.
"In fact, the word that stands out more than any other in today's preliminary results release is Legoland. The franchise has extended its reach over the past decade, opening new locations in Florida, Malaysia, Dubai and Japan, while a New York park is expected to open in 2020 as discussions for a park in Korea and China continue.
"This rapid expansion, alongside the drive to increase accommodation capacity, helped the parks to deliver a 4.7% increase in like-for-like revenues (and an 18.2% increase in organic revenues), easily outpacing the traditional Midway business which saw LFL revenues fall 1.2% (and mustered just 1.3% organic revenue growth)."
"Having been stripped of its FTSE 100 listing last year following a sustained retreat from June's all-time highs, punctuated by an October profits warning, the commitment to open a further 644 new rooms across all theme parks, a 68% increase on 2017, is being well-received by investors.
"Building on existing demand from those able to easily travel to parks by opening the door to visitors from further afield, in addition to generously offering them the ability to splash more cash over a multi-day trip, is a high growth strategy that today's buyers hope pays off in the long run."