Nearly a fifth of Alton Towers owner Merlin Entertainments’ (MERL) value has been wiped off on limited revenue growth in the 40 weeks to 7 October and downgraded earnings expectations.

Overall like-for-like growth was up just 0.3% as thrill seekers were deterred by UK terror attacks and wet weather.

Investors are concerned about the theme park operator’s outlook as the shares plummeted 18.3% to 367.5p.

merlin

TERROR ATTACKS SPOOK VISITORS

The company’s Resort Theme Parks division, which is predominately UK-based and includes Alton Towers, reported a 2.1% decline in like-for-like growth as a series of terror attacks earlier this year and the raised threat level resulted in a ‘difficult theme park market.’

Liberum analyst Anna Barnfather has put her recommendation ‘under review’ as the overall like-for-like growth of 0.3% was worse than her ‘low end expectation’ of 2.4%, which is itself lower than consensus estimates of 3.2%.

She reckons the consensus view among analysts will equate to a 3% to 4% downgrade to 2017 EBITDA (earnings before interest, tax, depreciation and amortisation) forecasts and next year's estimates reduced by 5% to 6%.

The analyst highlights the extra £262m required for LEGOLAND New York as a further headwind. After today's sell off Merlin trades on 15.5 times 2018 forecast earnings per share.

HEADWINDS ‘OUT OF MERLIN’S CONTROL’

Investec Wealth & Investment's head of UK equities Guy Ellison argues the long-term potential of the group and its brands are very significant, but the market is fixated on short-term trading.

He also points out the headwinds that Merlin is struggling with are out of management control, although if there were less terrorist attacks next year, the firm could benefit from better comparatives.

Despite the downbeat trading at Merlin, it’s not all bad news.

The theme park operator delivered 12.4% revenue growth, partially driven by favourable currency movements, which is encouraging as Merlin derives 70% of its profits outside the UK.

It also entered a multi-territory partnership with Entertainment One (ETO) to develop and operate entertainment attractions and themed accommodation based on the popular brand Peppa Pig.

The deal provides Merlin exclusive rights in all territories except the UK and China.


Issue Date: 17 Oct 2017