Thorpe Park and Legoland-operator Merlin Entertainments (MERL) is expected to benefit from accelerating earnings growth over the next two years.
Barclays Equity Research analyst Vicki Stern is upbeat about Merlin’s future.
She expects earnings per share growth will accelerate from -1% this year to 8% in 2019. This is anticipated to further grow to 11% by 2020.
WHAT WILL DRIVE EARNINGS GROWTH RECOVERY
Stern is encouraged by better trading in the Midway arm, which runs Merlin's smaller non-theme park attractions (Madame Tussauds is a good example).
The analyst also likes strengthening merchandise sales, where Lego-brand toys have been selling well.
Stronger trading in the US and the opening of Legoland New York in 2020 is also expected to pull in new crowds and contribute to the growth recovery story.
THEME PARKS CROWDED DESPITE POOR WEATHER
That Merlin's share price jumped around 4.5% to 361.5p on Friday shows the relief investors that March snow storms failed to dampen theme parks and attractions attendances too much.
Overall trading in the first couple of months of 2018 met company targets. However, that's based on lowered expectations, particularly for its London-based attractions, after horrific terror attacks in 2017.
Attendances ‘remain down year on year,’ Merlin says, although its remain optimistic of recovery ‘over time.’
MERLIN'S PERFECT STORM
Merlin has been hit by a whirlwind of issues over the last year as terrorism concerns, bad weather and vocal criticism from some analysts depressed the share price.
Since 27 April 2017, nearly a third of Merlin’s market cap value has been wiped off and it was kicked out of the FTSE 100 in December.
Last year, Merlin downgraded 2017 earnings expectations by 3% to a range of £470m and £480m amid disappointing like-for-like growth.
In February, we explored the issues putting pressure on the company and what it can do to get growth back on track.
CAPEX CONCERNS
But not everyone is convinced. Liberum’s Anna Barnfather remains concerned about increasing capital expenditure (capex) for Legoland New York, accelerating growth in Midway and accommodation.
Combined with sluggish like-for-like growth, rising leverage and the potential impact of currency movements on near-term returns, Barnfather is not convinced a re-rating is in the cards.
