Merlin Entertainments could be worth 50% more, ShoreCap says

Depending on the valuation model chosen, Merlin Entertainments's expansion plans could boost the value of the company's discounted cash flow by half, Shore Capital said in a research note sent to clients.

That followed an in-line trading statement from the theme-park operator in which the company said its resorts had an "excellent Halloween period" with management adding they expected a strong margin perforamnce for the full-year.

One sore spot for the operator of the Legoland parks was the impact of the pound on visitor numbers in London and restrictions on mainland Chinese visitors visiting Hong Kong, the broker pointed out.

Nevertheless, its 400p a share DCF valuation hinged on a forecast for only 33 Midway sites to be rolled out, versus the 100 envisaged by the company's director's

However, should Merlin manage to hit its target then that would be worth an additional 86p per share in terms of DCF.

As well, the firm was planning to open 20 Legoland parks, with a new one scheduled to open its doors between every 2-3 years. Each new site could be worth about 10p per share, analysts Martin Brown and Greg Johnson estimated.

"This implies that Merlin’s current expansion plans could be worth 150-200p a share over and above our core 400p DCF valuation."

Brown and Johnson stuck by their previous recommendation to 'buy' the stock.