Merlin Entertainment hotels could lift share price to 800p - Morgan Stanley

The plan by Merlin Entertainments to add hotels to their theme parks is underappreciated by the market, said Morgan Stanley on Wednesday as it set a bullish share price target for the years ahead.

Adding hotels to theme parks increases the visitor catchment area, revenue visibility, ancillary revenues, trading periods and guest satisfaction, Morgan Stanley gushed, with themed hotels such as Lego rooms at its Legoland parks providing an "immersive" family experiences and premium revenues.

Its analysis suggests around £450 revenue per room per night, which is three to four times higher than the market average, with management's ambitious target to increase the current 3,600 rooms by 2,000 by 2020.

With an average of 400 at its large parks being well short of the 1,000 at some competitors, Morgan Stanley sees 7,000 rooms by 2022, with hotels growing to 30% of adjusted operating profits, adding 5% to the annual group number.

Analysts calculated that earnings per share, which came in at 19.56p and are forecast at 22p for 2017, with continuing strong London hotel and visitor statistics expected to help Midway performance this year, could reach 50p by 2022.

A target price of 580p was set, with the bull case putting a 1,000p share price based on a forward multiple of around 20 times.