You can’t accuse Merlin Entertainments of lacking creativity. For the romantically inclined, there’s the £250 Sea Life London Aquarium wedding proposal package, complete with a personalised sign and a “small bottle of champagne”.
Or for families feeling festive, there’s a trip to Legoland in Windsor, complete with a visit to Santa’s grotto and a gift. That’ll be £35 each, please (yes, it’s the same price for your two-year-old or granny).
Since being floated on the stock market in 2013 by private equity houses Blackstone and CVC and Lego’s founding family, Merlin has marched into the FTSE 100 thanks to its growing line-up of attractions and punchy prices.
Lately, though, the Alton Towers-to-Madame Tussauds owner’s strategy has been tested. Its shares fell 16% in one day last month when it said it would miss City profit targets after a lacklustre summer — which it blamed on the weather terrorism.
While tourists are being lured to Britain by the cheap pound, Merlin says they are reluctant to visit its city centre attractions because of the terrorism threat. The shares remain depressed and closed last week at 377p, just 20% above float price, valuing Merlin at £3.8bn. At that price it is a prime candidate for relegation from the FTSE 100 when the top tier is reshuffled in a few weeks.
Analysts at Numis reckon the best way to unlock value for investors would be to break up Merlin, splitting theme parks from its “midway attractions” — smaller sites such as Sea Life, where customers typically spend only a few hours and sales are falling.
Nick Varney, long-serving chief executive, has different ideas. “When you are experiencing storms, the sensible thing is to navigate around them,” was his helpful advice last month.
That’s easier said than done. The Brexit iceberg is eroding consumer confidence fast, and will dampen families’ enthusiasm for a £140 trip to Legoland.
Meanwhile, Merlin is in the middle of an intense period of capital spending — up to £390m this year — and is sitting on a debt pile that totalled £1.2bn in June. Varney’s new tactic is to shift spending away from existing sites towards more lucrative hotel rooms and new theme parks that increasingly revolve around brands such as Peppa Pig.
Its drift away from the UK — still 34% of its business — towards Asia and America continues apace. But starving its existing estate of cash will hardly persuade squeezed punters to part with theirs. Avoid.
