Merlin Entertainments trading update

For most parents, just getting through the summer holidays is an exercise in survival: the heat, the exhaustion, the Haribo . . . So it is hard to imagine why anyone would say, “Hey, kids, let’s put ourselves through an 8-hour endurance experience based on the TV shows of Celebrity survivalist Bear Grylls! In Birmingham! For £160 each!” But that is exactly what listed theme park operator Merlin Entertainments considers an “attraction”.

At a cost of £20m, its new Bear Grylls Adventure is split into five zones, replicating some of the discomfort junkie’s televised adventures, such as skydiving, climbing high ropes and diving. This morning, though, the company said: “It is too early to comment on . . . commercial success, which as for all new brands could take time to build, but the attractions look fantastic and we are pleased with early guest feedback.” From guests who got through it, at least . . .

Fortunately, the rest of the business is performing in line with expectations, as London tourism shows signs of recovering from the decline in numbers seen after 2017’s terror attacks.

Resort theme parks achieved organic revenue growth of 9 per cent, thanks to good weather. Legoland Parks like-for-like growth was flat, but grew 6.4 per cent overall on the back of new park openings. And accommodation revenue grew by 27.7 per cent on a constant currency basis 

But costs aren’t getting any easier to survive. Merlin said, “The cost environment remains challenging, with tighter labour markets in many parts of the world adding to the pressures resulting from legislative changes such as the National Living Wage in the UK.”. Its “Productivity Agenda remains a key area of focus” as much as survival.

Key numbers:

  • 1.4 per cent group like for like revenue growth;
  • 4.7 per cent group organic revenue growth year to date;
  • 644 accommodation rooms opened in 2018.

Bottom line: Performance year to date in line with expectations, and 2018 outlook unchanged.

As the City expected? Yes. Peel Hunt says consensus forecasts are for full-year revenue of £1.66bn, adjusted pre-tax profit of £268m and net debt of £1.24bn.

What was said: Chief executive Nick Varney said: “Group trading has been in line with expectations, with variances by operating group reflecting the diversified nature of the portfolio. We have opened a record 644 rooms, and six new Midway attractions which has resulted in organic revenue growth of 4.7 per cent.”

OQ verdict: Rather like Mr Grylls, Merlin is doing a bit better than just surviving as other attractions make up for weakness in Legoland performance — mainly due to the lack of a big Lego movie release. Like-for-like revenue growth in the first half of the financial year was 0.5 per cent, analysts forecast an improvement to around 1 per cent, but Merlin has achieved 1.4 per cent. As in Birmingham, Peel Hunt can see “a better business is under construction.”

Bellway full-year results

Build more houses! OK, we’ve built more houses. Nah, I’m still selling your shares. It is tough being a housebuilder these days. Bellway appears to have done everything government and the market expects of and yet its shares have fallen by 22 per cent in the year to date, in line with the sector average.

Its full-year results appear above average, though: breaking through the 10,000 homes barrier for the first time in its history, growing volume by 6.9 per cent, maintaining return on capital employed at 27 per cent; earnings per share up 14.2 per cent to a record 423.4p; a 17.2 per cent rise in the proposed total dividend per share; and net cash of £99m on the balance sheet.

All the market cares about is sentiment, though. On that, Bellway said: “Whilst there is a risk to consumer confidence posed by the forthcoming exit from the EU, assuming that market conditions remain robust, Bellway has a solid platform from which to further increase output in the year ahead.” It also has an order book of £1.47bn, up from £1.36bn last October and expects “ further sustainable, long-term returns for shareholders”. But expect the market to focus solely on the line: “The board are mindful that the forthcoming exit from the EU in March could pose a threat to consumer confidence during the busy spring selling season.”

Key numbers:

  • Sales up 16 per cent to £3bn in the year to July 31
  • 39 per cent of total sales made through the government’s Help to Buy scheme, up from 35 per cent last year

Bottom line: Pre-tax profit up 14 per cent to £641.1m.

As the City expected? Yes. Consensus forecasts were for revenue of £2.93bn and adjusted pre-tax profit £641m.

What was said: Chief executive Jason Honeyman said, “The board are mindful that the forthcoming exit from the EU in March could pose a threat to consumer confidence during the busy spring selling season. Assuming that market conditions remain unchanged, however, this healthy position should enable Bellway to further increase output in the year ahead.”

OQ verdict: Bellway is doing all the right things — more so than others in the housebuilding sector. But the fact its shares have fallen exactly in line with the sector average suggests these results will do little to change the prevailing market view.

Today’s Lombard column focuses on Superdry’s profit warning:

Superdry’s Japanese T-shirt slogans now make a bit more sense. According to the latest version of the Google Translate app, the ideograms do not read “Extremely Desiccated (Please)”, as Lombard first surmised. Instead, they say “Extremely Dry (Do it!)”. But, the trouble is, shoppers seem to have been treating this as both a weather forecast and lifestyle advice: going out in T-shirts in September instead of buying new coats. 

Read the rest of today’s Lombard column here

FT Opening Quote, with commentary by Matthew Vincent, is your early Square Mile briefing. You can receive it by email at 8am every morning by signing up here

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