Just before the tragic accident at Alton Towers in early June, its owner, Merlin, the world’s second-biggest leisure park operator, was worth more than £4.7 billion. Had the abrupt decline since continued, this could have threatened its place in the FTSE 100.
In the event, the shares have recovered sharply. Alton Towers is one of its biggest attractions and visitor figures remained well down in the autumn, despite some popular Hallowe’en-themed activities. The park is now closed for the winter and Merlin is looking at cutting staff numbers to match lower demand.
The company’s end of year trading update showed the benefits of being such a diversified business. The accident will have contributed to a flat outcome this year, the result for 2015 unlikely to have exceeded the 0.3 per cent like-for-like sales growth to date notched up at the start of September, given that the main selling season is now over. Analysts are looking for a return to growth in 2016 for all three parts of the group, though, with Legoland the main driver.
Merlin has indicated that earnings from Resort Theme Parks, the division that contains Alton Towers, will come in at £40 million to £45 million this year. Forecasts are for a return to perhaps £52 million in 2016. This is the one part of the business that is not being expanded by building new sites, as these are expensive, free-standing resorts. Legoland Parks achieved continuing growth in spending per customer and margins and this is where the investment is going in future. A park is being built in Dubai, under a less expensive management contract model. Two are planned in Japan and South Korea and another is likely to be built in Shanghai, should a suitable site be found.
The smaller Midway Attractions are being hit by the weak euro, which is dissuading visitors to London, and by restrictions on travel from China to Hong Kong. These can be built easily as the company sees fit, with at least 100 new potential locations already identified.
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Pre-tax profits will come in little-changed on last year’s £249 million, but probably will rise by approaching 10 per cent next year, putting the shares, up 5¾p at 415p, on a forward earnings multiple of 21. Not cheap, but Merlin is one of those stocks worth taking a long-term view on.
2014 profit before tax £249m
MY ADVICE Buy long term
WHY This year’s results inevitably will come in flat, but the company is well funded and poised to add plenty of new attractions
Topps Tiles has got to where it wants to be — with a third of the domestic market in tiles — a year ahead of forecast by taking business from those remaining independents. It is not competing too greatly with the DIY sheds, though the closure programmes being carried out there should drive extra business its way. It is, however, benefiting from the trend away from doing it yourself and towards getting a professional in; half of its sales now go to tradesmen.
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However, the company confirms what others in the sector have indicated, that the housing market has come off the boil a bit since the early summer, with fewer people moving, meaning fewer new bathrooms and kitchens. So like-for-like sales since the end of September rose by a respectable 3.3 per cent, against 5.8 per cent in the corresponding period last year.
Topps reckons, after a market survey carried out for it by Experian, that it can increase its from 323 stores to about 450, adding perhaps up to 15 a year. There is also the option of moving further into the commercial market by selling to small businesses.
For the year to October 3, it raised gross margins further by focusing on more advanced ranges. Like-for-likes were up by 5.4 per cent and pre-tax profits by 19 per cent to £20.4 million.
The shares have been strong performers in recent weeks after a sell-off in the autumn. Off ¾p at 162p, they sell on 18 times earnings, which does not suggest much upside in the near term, even if the longer-term growth is there.
Revenue £212m Dividends 3p
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MY ADVICE Avoid for now
WHY Company is well placed, but multiple is demanding
When is a promise not a promise? When it is made by a private equity firm, it seems, promising not to sell shares for a given period after a stock market float. Sophos, the IT firm that came to the market in June, is the latest debutant to have a private equity backer, in this instance Apax Partners, sell shares during the formal lock-in period.
Apax has lightened its holding by selling 13 per cent of the company, leaving it with 22 per cent, having indicated at the float that it would hang on until Christmas. The argument, when this happens, is that other investors are so keen to get hold of the stock that it would be a kindness, really, to sell to them.
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Sophos investors do not have a lot to complain about in this case. The shares were floated at 225p. They fell 25½p to 258p as Apax sold at 265p. The company beat market expectations with its halfway figures last month and I have suggested before that it is a good long-term prospect, even if the shares have yet to trade on any meaningful multiple.
The price fall looks like a good long-term buying opportunity, then, even if there could be further upsets on the way as Apax exits.
Market capitalisation £1.16bn
MY ADVICE Buy long term
WHY Market position in small companies is a strong one
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And finally...
Adding to signs that the global economy is not in the best of shapes comes a profit warning from Linde, the German group that is the world’s biggest producer of industrial gases. The shares fell in Frankfurt after Linde cut its 2017 profits target. The company had already trimmed its forecasts for this year in the summer, blaming low oil prices. It gets many of its customers from the steel, oil and petrochemicals and semi-conductor industries, among the first to be hit when industrial output slows or goes into reverse.