Five reasons not to buy into Merlin Entertainments IPO?

Wise_Investor_2

Like many of you, I am thinking to buy into Merlin Entertainments IPO. I know it's not gonna bring back day 1 results like Royal Mail maybe, but I thought it was a good share to diversify with as economic picks-up.

But one view has a less happy picture (investoo.co.uk/should-i-buy-merlin-entertainments-shares-no-says-questor/) via 'Questor'. In his view, it'll have a low divi, won't be highly cash generative, has a big debt pile and more concerning think its a classic private exit so no long-term commitment.

This is pretty damning! But surely there are some positives like its relatively unique services?

chucknorris

Wise_Investor wrote: »

Like many of you, I am thinking to buy into Merlin Entertainments IPO. I know it's not gonna bring back day 1 results like Royal Mail maybe, but I thought it was a good share to diversify with as economic picks-up.

But one view has a less happy picture (investoo.co.uk/should-i-buy-merlin-entertainments-shares-no-says-questor/) via 'Questor'. In his view, it'll have a low divi, won't be highly cash generative, has a big debt pile and more concerning think its a classic private exit so no long-term commitment.

This is pretty damning! But surely there are some positives like its relatively unique services?

Have you factored in that the stock market is going to take off during the next few days though? I know this because I partially sold out today and cashed in about half of my none ISA shares, so obviously history will prove that decision was the wrong move.

Perelandra

Thanks for the heads-up, chucknorris, I'll go overweight on equity now.

I won't be investing in the IPO, simply because I have nowhere near enough information to decide whether I want to invest in that particular company or not. An IPO from private owners is a different beast from an IPO from the public sector.

Simon11

I love theme parks, but shares in Merlin will be a waste of money.

All I see is lots of risk without any potential!

Parks like Alton Towers need large investments without any potential to growth revenue significantly.

Bazofts_Revenge

I hate places like that so won't be investing.

blinko

Thanks for the heads-up, chucknorris, I'll go overweight on equity now.

I won't be investing in the IPO, simply because I have nowhere near enough information to decide whether I want to invest in that particular company or not. An IPO from private owners is a different beast from an IPO from the public sector.

More information will be released soon, wait until you have as much information available before making a decision. expected price to float will be between 280p-330p

I love theme parks, but shares in Merlin will be a waste of money.

All I see is lots of risk without any potential!

Parks like Alton Towers need large investments without any potential to growth revenue significantly.

No potential !!!! what makes you say this? there is HUGE growth at Merlin, look at the revenue and EBITDA for the last 5 years

I hate places like that so won't be investing.

with all due respect your personal opinion on theme parks/its product is irrelevant if we apply a similar thought process to say Coca-Cola/Mcdonalds etc which has a much larger dislike base you will have missed out on huge gains. What is important is will merlin be generating greater cashflows in 4-5 years time etc

paddyrg

with all due respect your personal opinion on theme parks/its product is irrelevant if we apply a similar thought process to say Coca-Cola/Mcdonalds etc which has a much larger dislike base you will have missed out on huge gains. What is important is will merlin be generating greater cashflows in 4-5 years time etc

Seeing as it's all speculation and gambling, then investing in a sector you feel a connection to is actually not a terrible idea. Similarly investing in a sector you don't understand is going to be relying on other peoples judgements as opposed to your own. That means you'll never outperform other people, and by extension will not outperform the market average.

I was urged to invest in gold, I didn't believe in that market, turns out that was prudent. I invested in Royal Mail not for a quick sale buck, but because I see a long-term upside in the company. Maybe I'll be right or wrong, nobody knows.

As for Merlin - could go either way. They have to acquire to grow, and this needs cash for sure. However running parks and buying new rides and attractions is big cash outlay just to stay current. Which direction is this cash going? Staying current or growing? Could they be overreaching? I don't know. I don't know that sector well enough. Will xyz new attraction be a big plus or a big expense? Not caring much for parks, I can't second-guess that market segment, so it would be pure gambling.

IronWolf

Theme parks are quite capital intensive, but there are significant barriers to entry. That leads me to think Merlin's revenues will be fairly steady but cash flow could be a problem.

It will all come down to the financials at the end of the day though, and if they have a lot of debt I will pass as I don't invest in companies with more than 1-2x EBITDA in debt (unless under special circumstances)

atush

It will also help to know their plans re expansion. Expanding into the hotel sector and adding a waterpark like Disney helps to contain the spending in the Merlin pocket, but is their room for further expansion?


My son goes to Univ of Warwick, and we declined to pay the high price of admission there. But we have used the AT park and hotels.

Thrugelmir

Looks like the existing shareholders are hoping to raise around £800 million, use £200 million to reduce borrowings, then walk away with £600 million.

This leaves the Company with £1.1 billion of debt. 300 pages of prospectus to wade through. My over riding concern is the debt level. As as the prospectus states. There's no guarantee it will be refinanced at the same rates of interest. Thereby impacting profitability and the ability to pay/grow dividends.

Think I'll sit this out and watch for a while. While returning to the AIM pond and fishing for tadpoles.

Bazofts_Revenge

blinko wrote: »

More information will be released soon, wait until you have as much information available before making a decision. expected price to float will be between 280p-330p

No potential !!!! what makes you say this? there is HUGE growth at Merlin, look at the revenue and EBITDA for the last 5 years

with all due respect your personal opinion on theme parks/its product is irrelevant if we apply a similar thought process to say Coca-Cola/Mcdonalds etc which has a much larger dislike base you will have missed out on huge gains. What is important is will merlin be generating greater cashflows in 4-5 years time etc

I don't frequent the places I can't see how popular they are now or compared to 5 years ago and such like. All I do know is they are expensive days out and most people that I know are cutting back on what they spend and reducing their own debts. Maybe one of my funds will take a punt but not me. If they turn out to be a high dividend payer though and grow their dividend over a number of years I may invest in a few years time but lets see them set a good track record first.