The Sinking Ship: (Un)Love Letters to Merlin

[imanautie]

For a few reasons, I think Merlin's strategy is fairly sound but they have a few growing pains which they are beginning to overcome. I also don't think that the share price is necessarily indicative of the results - in the same way that in the past it has made great strides on the back of seemingly nothing. The properties are highly profitable, they just need to find a way to grow them - that's very hard to do in some of their markets, with some of their attractions.

I also think that they have underplayed the effect of Smiler on the RTP business in conversations with the financial community, which I think is potentially dangerous in the short term, but the right thing to do on the back of the way the situation was reported (and continues to be so). In the LLP and Midway space I think they're doing good things. They make relatively smart decisions when it comes to acquisitions and expansions.

I believe Varney is the right guy to run this company, he lives and breathes the attractions industry and that company in a way that I haven't seen in many CEOs. Plus, he has a lot of cash tied up in Merlin himself, it's not in his interest to see it fail - why would he want to destroy something he helped build? (Yes, I know that's Eminem).

Additionally, we can see what has transpired with Merlin because they own the parks, we'll never know what would have happened if someone else had got hold of them. There seems to be an assumption in this community that what we have now is as bad as it could possibly get but anything could have happened if someone else had got their hands on the parks - we'll never know.

The desire to compare what happens in the UK vs. what happens at a family owned German park is far too great. Life is not like RCT, the reality is very different in different markets.

If I am wrong, well it's only money, isn't it - my kids will have to put themselves through uni. They'll get snapped up by private equity and then the fun will really start.

Oh god please no VC.

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[Bert2theSpark]

It would worry me if Towers ended up in the hands of someone like Cedar Fair, Universal or Parques.

Yeah Merlin do have their shortcomings from time to time but they're a business and they still run and manage the park a lot better than most other theme park operators out there at the moment.

[/endofthread]

 

[imanautie]

What would it be like if Alton Towers Resort was an independent? (I know that it wouldn't happen)

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[Matt.GC]

For a few reasons, I think Merlin's strategy is fairly sound but they have a few growing pains which they are beginning to overcome. I also don't think that the share price is necessarily indicative of the results - in the same way that in the past it has made great strides on the back of seemingly nothing. The properties are highly profitable, they just need to find a way to grow them - that's very hard to do in some of their markets, with some of their attractions.

I also think that they have underplayed the effect of Smiler on the RTP business in conversations with the financial community, which I think is potentially dangerous in the short term, but the right thing to do on the back of the way the situation was reported (and continues to be so). In the LLP and Midway space I think they're doing good things. They make relatively smart decisions when it comes to acquisitions and expansions.

I believe Varney is the right guy to run this company, he lives and breathes the attractions industry and that company in a way that I haven't seen in many CEOs. Plus, he has a lot of cash tied up in Merlin himself, it's not in his interest to see it fail - why would he want to destroy something he helped build? (Yes, I know that's Eminem).

Additionally, we can see what has transpired with Merlin because they own the parks, we'll never know what would have happened if someone else had got hold of them. There seems to be an assumption in this community that what we have now is as bad as it could possibly get but anything could have happened if someone else had got their hands on the parks - we'll never know.

The desire to compare what happens in the UK vs. what happens at a family owned German park is far too great. Life is not like RCT, the reality is very different in different markets.

If I am wrong, well it's only money, isn't it - my kids will have to put themselves through uni. They'll get snapped up by private equity and then the fun will really start.

I think their strategy is doomed to failure. They've floated a company that mainly requires high investment to sustain trading momentum. The problems with that are threefold:

1. They don't have cash to make mistakes.
2. They persistently make investment mistakes.
3. They try to rectify their mistakes by pulling OPEX to meet market expectations (pressures that a private company wouldn't always have), thus painting themselves into a corner in an unforgiving high investment high risk industry.

I think they've got themselves into a headlines trap. A trap that many service industry companies get themselves into where they live trading update to trading update in the hope that they can get some good healines in the city. I invested because I looked at the assets Vs the valuation and decided that the only way was up, not because I had any long term aspirations but because I deemed the shares temporarilly undervalued, a problem when people buy your shares because they are seen as cheap.

I don't think Mr Varney's investment in Merlin or his industry credentials are that important. When you get to CEO level, it's a different world. Your emotional loyalties to the company mean nothing when you can get out when the share price is high. It's all about the bucks, hardened capitalists will sell their grandma to make a a few quid, emotional loyalties are secondary in nature.

Don't get me wrong, I don't think all of Merlin's business is crap. I think Midway's will recover well and they are clearly doing the right thing with the expansion of Lego. The company clearly have some creative people working for it, plus a prudent CFO to crush their ideas when April looms.

But they have those lumbering elephants hanging around in the back ground. Entertainers they may be, running parks on the back of a successful brand they can do, but they are undeniably shit at running RTP's outside of the Lego brand. These shrinking parks that keep demanding high CAPEX yet fail to deliver a return every time seem like a burden to the board. They seem to have a run out of excuses for their poor performance as well (a sentiment I would agree with).

I think they need to go through a pain barrier to continue. This may involve selling AT, heide and Gardaland (or practically giving them away). I think it's clear from the operational budgets that they can't afford to operate these parks anymore without upheaval that is not compatible with their current business model.

Even if they had a big pot of cash (they don't), I don't think they have the Investors around them who believe there is enough of a future in these parks for this business to continue investing in them. This was made clear in their "backing the winners" mantra, a commitment to only throw money at the no brainers at the expense of the ball and chain that's holding them back that will only get worse the longer it's left.

They have to deal with the elephant. Dealing with the elephant will require short term pain.

 

[Rick]

@matthewgcole I agree with some of what you said, disagree with some of it too. The way that Merlin came into being meant that it was going to have to go public at some point and as you rightly point out, being public brings its own challenges and forces you to operate in certain ways and make certain decisions.

My only question is why you ever invested?!

 

[Matt.GC]

@matthewgcole I agree with some of what you said, disagree with some of it too. The way that Merlin came into being meant that it was going to have to go public at some point and as you rightly point out, being public brings its own challenges and forces you to operate in certain ways and make certain decisions.

My only question is why you ever invested?!

Good question!

My investment method involves looking for undervalued stocks. A company who's share price has tanked draws my attention, I then look at the balance sheet to assess the value of the assets, the reasons behind the fall, and then what the next trading update could be like. I also look at the dividend in case I get stuck.

I weighed all of these up with Merlin and decided that, on top of geek knowledge, the current share price undervalued the conpanh and therefore the price was likely to rise enough to make a profit within the next 12 months.

 

[imanautie]

Good question!

My investment method involves looking for undervalued stocks. A company who's share price has tanked draws my attention, I then look at the balance sheet to assess the value of the assets, the reasons behind the fall, and then what the next trading update could be like. I also look at the dividend in case I get stuck.

I weighed all of these up with Merlin and decided that, on top of geek knowledge, the current share price undervalued the conpanh and therefore the price was likely to rise enough to make a profit within the next 12 months.

Is investing in a company you personally enjoy the products of the best idea?

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[Rick]

Is investing in a company you personally enjoy the products of the best idea?

If you're investing because you enjoy the products, that's unwise (unless you're just chucking £100 at it for fun). If you're investing in a company because your enjoyment of the product gives you insight into the company beyond the share price, that's unequivocally a good idea.

 

[Matt.GC]

Is investing in a company you personally enjoy the products of the best idea?

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What @Rick said. As long as you can separate fanboyism from financial decisions then yes it's a great idea. I have investments in industries I work in and have knowledge of (like this one).

That way I can make decisions with hard facts (and sometimes industry speculation) to enable me to make my decisions. You just need to separate business from emotion.

 

[Tim]

I second what Rick has said.

My most successful shares have been in a company I like but that wasn't the reason why I bought them. The company was one that was well established but had disappeared from the public eye. However I'd kept an eye on them and noticed they were working up to something big. That was when I bought in. That company was Frontier Developments, and the big announcement was Planet Coaster. Years of playing RCT3 payed off, literally!

But if a company is already doing strong that doesn't make them a good investment choice. Hence why I wouldn't invest in most the companies I like.

 

[ChristmasPud]

Someone else was in charge of the purse strings and they seemingly agreed that they could make more money flogging the group than they could out of operating it

Just to add that the Tussauds senior team from the late 80s/early 90s when Alton Towers was being acquired and then regenerated (which produced what's generally regarded as the group's best era), was fairly different to the team that were running it from the mid 90s onwards.

At which point quality/investment was steadily being rolled back and the Tussauds portfolio beefed up with Thorpe for the sake of making the group attractive to flog. (Another dodgy move in that it caused Chessington to seriously decline and lose healthy competition in the south)

The senior change of direction towards selling the group was one reason why Nick Varney left the company in the mid 90s I believe? Along with several others from Tussauds, to go do it 'their way' and then buy Tussauds out when it had later hit rock bottom.

But yeah very interesting discussion.

 

[WickerManiac]

Forgive me, but I am a moderator on this forum. The removed posts compared Nick Varney to a man thought to have been responsible for mass killings in Africa.

This is wholly inappropriate and does not contribute to sensible discussion in any respect.

It wasn't a trick question. I want to know what you think!

Is Nick worthy of a honorary degree for his services to the leisure and tourism industry over the past 15 years?

 

[Dave]

Personally I don’t think themeparks suit the short term strategies the stock market forces on businesses. They require huge CAPEX, that takes considerable time to mature into profit, but the OPEX is high too.

I disagree with the way Merlin handled the Smiler aftermath, they focus too heavily on budget rather than allowing the parks to maximise outturn. I also think the MAP has become a cash drain that they are now too scared to lose.

Most of their business choices have been fairly sound though, we may not like the carbon copy midways and Lego’s but ultimately guests don’t visit more than one, and the geographical spread means to most folk there is a unique attraction that is actually cheap to replicate.

I’m just not convinced the RTP group fits their model. Not sure who out there exists who has the capital to buy the parks yet operate them on a more long term strategy though.

 

[JB1985]

Personally I don’t think themeparks suit the short term strategies the stock market forces on businesses. They require huge CAPEX, that takes considerable time to mature into profit, but the OPEX is high too.

I disagree with the way Merlin handled the Smiler aftermath, they focus too heavily on budget rather than allowing the parks to maximise outturn. I also think the MAP has become a cash drain that they are now too scared to lose.

Most of their business choices have been fairly sound though, we may not like the carbon copy midways and Lego’s but ultimately guests don’t visit more than one, and the geographical spread means to most folk there is a unique attraction that is actually cheap to replicate.

I’m just not convinced the RTP group fits their model. Not sure who out there exists who has the capital to buy the parks yet operate them on a more long term strategy though.

Your last paragraph is the biggest problem facing Merlin theme parks

 

[imanautie]

Personally I don’t think themeparks suit the short term strategies the stock market forces on businesses. They require huge CAPEX, that takes considerable time to mature into profit, but the OPEX is high too.

I disagree with the way Merlin handled the Smiler aftermath, they focus too heavily on budget rather than allowing the parks to maximise outturn. I also think the MAP has become a cash drain that they are now too scared to lose.

Most of their business choices have been fairly sound though, we may not like the carbon copy midways and Lego’s but ultimately guests don’t visit more than one, and the geographical spread means to most folk there is a unique attraction that is actually cheap to replicate.

I’m just not convinced the RTP group fits their model. Not sure who out there exists who has the capital to buy the parks yet operate them on a more long term strategy though.

I can't think of a UK company(or indeed any for Alton Towers Resort) but I can imagine Thorpe Park Resort fitting in with an American operator like six flags.
And no I am Not joking.

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[Matt N]

It would worry me if Towers ended up in the hands of someone like Cedar Fair, Universal or Parques.

Yeah Merlin do have their shortcomings from time to time but they're a business and they still run and manage the park a lot better than most other theme park operators out there at the moment.

[/endofthread]

What's wrong with Universal, out of interest? They've been making stunning investments into their parks around the world!

 

[Rick]

What's wrong with Universal, out of interest? They've been making stunning investments into their parks around the world!

I'm not sure there is anything wrong with Universal in essence but they couldn't operate Alton in the same way, who knows what would happen.

@ihaveaspergers Thorpe would certainly fit into the Six Flags portfolio better than the other parks but I'd have to take a sabbatical from this board the day it happened to avoid conversations about £9 funnel cakes, £18 parking and mandatory lockers on Stealth at £1 a pop.

 

[Benzin]

I'm still adamant that Plopsa would do wonders with Chessie, I think their Studio 100 shows are slowly growing in some popularity...

I just want a House of Anubis retheme for Tomb Blaster tbh...

Doubt any of the American chains would take a risk in the UK... Even if Thorpe is Cedar Point lite...

 

[jon81uk]

What would it be like if Alton Towers Resort was an independent? (I know that it wouldn't happen)

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It would be a lot more like Drayton Manor.

 

[Matt.GC]

Merlin can't flog off all of their RTP's. They're stuck in a situation where they're not compatible with their business model and they are clearly struggling to run them but they need them to sell MAP's. And MAP's are an integral part of their strategy.

I think the MAP could still be sold as much the same product without Alton Towers but not without the TP and Chessington as well. I still think AT is showing all the hallmarks of being for sale, but as we've all discussed already at length, there's unlikely to be any buyers due to the aforementioned high OPEX high CAPEX for only long term rewards that a park of this nature demands. It requires an owner with deep pockets, patience and nerves of steel, none of which are trademark traits of most listed companies.