It makes no sense whatsoever, statistically, to change your travel plans to European capitals, including London, because of a fear of being caught up in a terrorist attack. However, humans are not always rational and Merlin’s Midway Attractions, which includes Madame Tussauds, Sealife and those Dungeons and is the clear underperformer among the three divisions so far this year, has outlets in Istanbul, Munich and Orlando, all of which have suffered from terrorist attacks.
When considering Merlin Entertainments, it is important to take a long view. The past two years have seen hits from the high value of sterling, if you can remember that far back, the Alton Towers accident and terrorism fears. Alton Towers, part of the resort theme parks division, is beginning to come back; a 3 per cent rise in revenues across the division this year contrasts with a 9 per cent fall in 2015.
Its Legoland park in Florida was hit by terrorism and fears over the zika virus. Madame Tussauds in Shanghai was affected by the arrival of the Disney resort there in June. Merlin is even in Charlotte, North Carolina, scene of the recent riots.
These are all short-term effects, though terrorism will be with us for a while and further attacks will result in more cancellations. Merlin is as yet seeing no benefits at its London attractions from the lower pound, but this is probably a lagging effect, tourists arriving this summer having booked before the Brexit vote, and it will be there in due course.
Longer term, the company has set out ambitious opening plans, including Legolands in Japan and Korea that will be part-funded by others and one outside New York that will cost the company $300 million up front. This suggests any thought of extra returns to investors is illusory; Merlin can get a 14 per cent return on those investments. The dividend yield is low, therefore, below 2 per cent.
The company has traditionally grown organically by 4 per cent a year; this year will miss that and 3 per cent is more likely for 2017, but growth should continue thereafter if there are no further upsets. The company has the balance sheet to fund that expansion. On 21 times this year’s earnings the, shares, off 27½p at 442p, look a bit pricey.
My advice Hold
Why The shares are highly rated. The growth story is there long-term supported by strong brands, but growth from here could be pedestrian
RPC Group
I have been pushing shares in RPC for a time now; they have doubled in price since the start of last year and there is little in the latest trading statement marking the end of the first half to suggest that upwards trajectory will not continue. The story remains the same. RPC, an unromantic maker of plastic packaging, will see both revenues and profits “significantly ahead” of last time through organic growth and the synergies from acquisitions.
Meanwhile the latest deal — the takeover of the London-quoted British Polythene Industries — has just completed and gives RPC a sixth standalone business. The synergies from two previous large deals, Promens and Global Closure Systems, and the £10 million promised from BPI are being reviewed “to assess potential further upside”, which means they will almost certainly be exceeded if past performance is anything to go on.
There is even a line about further opportunities to grow being actively pursued, which suggests the next deal may not be too far off. The shares, up 6p at 958½p, sell on 17 times earnings. This is quite high, but RPC has a long history of surprising on the upside.
My advice Buy
Why There is no sign of the RPC growth engine slowing
WS Atkins
The US is going through its own period of political uncertainty, though those UK companies working there say the run-up to the election does not compare with the pre-Brexit vote jitters here. WS Atkins, in its trading update to mark the close of the first half, says its North America business had a particularly good first half, though there is inevitably a degree of uncertainty before the election.
The consulting engineer is coming to the end of two big transport projects there, a light rail scheme in Baltimore worth $100 million and some highways work in Colorado, and these are feeding through to profits.
There is nothing of this significance on the horizon, even if recent US legislation will allow states to take a longer-term view on transport and start the sort of large contracts that Atkins is interested in. In the UK and Europe the first-half outcome should be equally positive, while in the Asia Pacific there are even tentative signs that the Chinese property market is improving.
That only leaves the Middle East. There are a couple of big metro contracts being worked on but further awards are proving slow to materialise even if there are a couple of such rail projects being planned in Saudi Arabia. The lack of cash in the system because of cheap oil, leading to delays in clients’ settling, remains a concern, though.
I tipped Atkins shares at £13.75 in the spring. Up 36p at £15.89, they sell on 13.5 times earnings. Not dear, but there is no harm in taking a few profits.
My advice Take profits
Why Shares have come up a long way since the spring
And finally . . .
I have also been recommending Allied Minds, though it has to be said that up to now the market has failed to share my enthusiasm. I pointed out only the other day that it was one of the better ways to invest in high-tech companies long term. The company, which takes interesting innovations from US academe and the military and commercialises them, saw its shares jump by 7 per cent as it announced an agreement with GE Ventures, which also helps small start-ups, giving Allied access to ideas within its stable.
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