I don’t know about you, but back in the day when my children were younger and family days out were part and parcel of the “being a parent’ experience, I found myself on numerous occasions being horrified at entrance prices to visitor attractions and saying to my wife “someone somewhere is making a nice tidy sum out of this”. And which company was the main recipient of my hard-earned cash?
Europe’s no.1
Step forward Merlin Entertainments (LSE: MERL), which is Europe’s leading visitor attraction operator and the second largest in the world. For families like mine it has something of a captive audience as the group boasts internationally famous attractions such as Legoland, Madame Tussauds and Sea Life, as well as nationally recognised destinations such as Alton Towers, Thorpe Park and Warwick Castle. It operates over 100 attractions, 13 hotels and 5 holiday villages in 24 countries and across four continents.
The Dorset-based leisure group announced its full-year results for 2016 earlier this month, reporting another strong performance. Revenue for the year grew by 11.7% to £1.46bn, as the total number of visitors increased to 65.1m, a 1.3% improvement on the previous year. The company has a strategy of portfolio and geographic diversification, with over 70% of profits now coming from outside the UK. With so many political and economic uncertainties around at the moment, I think that’s a smart strategy.
As well as transforming its theme parks into destination resorts , the group is also currently rolling out new attractions in the US, Turkey, India and Germany and has new Legoland developments in the pipeline for Dubai and Japan. Unfortunately, Merlin’s shares are trading close to all-time highs at the moment, sending the P/E rating above 22. But I’m still keen on the long-term growth prospects, so perhaps one to add to the watchlist for the time being.
Hop on board
Another company from the travel & leisure sector that’s been moving its focus away from the UK is National Express (LSE: NEX). In common with Merlin, the Birmingham-based transport group has also benefitted from having a diversified portfolio of businesses.
During the last calendar year, National Express completed no fewer than 11 acquisitions, all of which are expected to be earnings accretive within the first 12 months. This includes eight bolt-on acquisitions in North America, a regional bus business in Spain, a private hire transfer operator in Switzerland, and a coach business in the UK.
I think National Express has entered 2017 with a reasonably good outlook. Significant reductions in its cost base along with the expected full-year benefit of its recent acquisitions should help to boost future profits. To me the shares look a little undervalued at the moment, trading at 12.5 times earnings for the current year, falling to 11.6 by the end of 2018. I think this could be a good time to hop on board the National Express.
