Merlin Entertainments
Sales growth 6.7%
Merlin had already indicated that this would be a quiet year, in terms of capital spending and new openings, and that the second half would struggle to match the performance this time last year.
As it turned out, the all-important months of July and August were respectable enough. Growth across the group was 5 per cent, against a figure of 8.1 per cent reported for the first half.
The standout was its Legoland parks. Midway Attractions was hit by the unrest in Thailand, where it has an aquarium and a Madame Tussauds, but strong performances elsewhere held its performance to that group average.
The underperformer was the resort theme parks, which showed little growth. These were up against difficult comparators, because the summer of last year was much stronger than the weather-affected same period in 2012.
The half a dozen new openings this year will feed into the results for 2015, which looks likely to register a strong performance.
Merlin has been growing at mid single-digit rates for a decade or more, and the slate of upcoming attractions, which include a Shrek-themed park in London next year, will continue apace.
There were questions over the November float, which took place to meet the wishes of two private equity holders to cut their holdings. Investors will not need reminding that such debuts do not always go well. CVC and Blackstone then wasted no time after the six-month lock-in period was over to sell down again; they are still sitting on 8 per cent and 14 per cent respectively, and this will continue to overhang the market.
In the event, the shares have held up well enough, better than some other recent debutants. Floated at 315p, they peaked at above 390p in March and added 10p to 350½p by last night’s close. The company says that margins this year will be about where they were in 2013, and the market is factoring in earnings of about £400 million this year.
On this basis they sell on about 21 times that, which looks like a lot of growth already built in, while the forward yield is below 2 per cent. I would be in no hurry to buy until that private equity overhang is cleared.
My advice Hold
Why Shares are on a high rating. Two private equity groups still have substantial holdings and may want to sell down further
RPS Group
£17.6m Price paid for Point
The statement from RPS Group on its latest acquisition is an odd one. This is a specialist consultancy, market cap in excess of £600 million, which buys about three or four bolt-ons a year, with the intention of lessening its reliance on energy and resources.
The latest deal, coming only a few weeks after the last one, fits the job. Point is an Australian project manager that serves anything but the above. RPS is paying a maximum of £17.6 million.
The amount being paid is a bit behind RPS’s historical earnings multiple, and so it will add to earnings from the off. But tagged on to this is a sentence pointing out that any contribution from Point will be offset by the cost of the cancellation of projects by clients in Iraq and the Kurdish region of the country.
Numis Securities, the house broker, puts the cost of this at a hefty £250,000 a month, for as long as the crisis continues. This is an open-ended question; Numis is inclined to shuffle next year’s forecasts upwards, but other brokers were more cautious.
The shares, up 6½p at 277¾p, sell on 13 times earnings. The model is a good one, but further progress might require more certainty.
My advice Hold
Why Continuing uncertainties in Iraq will weigh on shares
Premier Farnell
Revenue £479m Dividend 4.4p
Premier Farnell ought to be a simple enough business to follow. It publishes quarterly numbers that are as up to date as can be, because customers ordering components from this electronics distributor do so and mostly expect these the next day. This means there is little time lag. The numbers give, in real time, a clear indicator of the demand for key products and are an indicator of global economic trends.
Those trends are positive again. Premier, stripping out one-off factors and currencies, reported a 3.3 per cent rise in revenues in the six months to the end of July. But this was made up of a 2 per cent first-quarter gain accelerating to 4.7 per cent in the second.
Part of this was down to the company’s own attempt to broaden its customer base, by means of acquisition, so it can work more closely with chip makers designing new products. Part is a genuine improvement in its markets, in the United States, less so in the UK and on the continent, and most noticeably in Asia and the Pacific.
The company is on course to meet the targets it has set itself by the next financial year, a 6 per cent rise in sales before one-off factors and an operating margin of 10 per cent to 12 per cent.
Shares in Premier, and in the larger Electrocomponents, tend to oscillate according to those macroeconomic trends.
At present, up 4½p at 193p, they are at the bottom of their trading range and sell on 13 times earnings. Experience suggests that they should move up again as the market improves. Buy on that basis.
My advice Buy
Why As markets improve, this should be reflected in price
And finally ...
Kier Group shares were up by 2.6 per cent as the figures for the year to the end of June continued to show the benefits of the May Gurney acquisition, in the numbers for almost the full year. This is looking like one of those deals that works on every level: it allows cost savings as the businesses are integrated, the winning of larger contracts and a return on capital of 15 per cent a year. Competition remains tough in regional UK construction, where Kier and many others are suffering from the effects of cost inflation.
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