Positive theme

This worked its magic on the bottom line, as revenues climbing 5.9% to £1.69bn helped underlying earnings rise 4.3% at £494m. The group’s attractions, which include Madame Tussaud’s, London Dungeon, the London Aquarium and London Eye, had been hit by a drop in tourism in the capital since the 2017 terrorist attacks. Now the crowds are back, and Merlin is reaping the benefit, with a 4.9% rise in pre-tax profits to £285m.

Its resort theme parks division did particularly well with organic revenues up 9.1%, “driven by successful product investment, favourable weather and another strong Halloween period.” LEGOLAND Parks’ organic revenue increased 6.4% due to the opening of a record 644 accommodation rooms, offsetting a broadly flat performance.

LEGO lands

CEO Nick Varney said the group continues to mitigate ongoing external cost pressures and expects to deliver up to £35m of annualised savings by 2022. He also said it’s well placed to deliver long-term growth and returns and benefit from long-term trends such as a rising consumer spend and the increased focus on shared experiences.

The group is planning to open new LEGOLANDs in New York in 2020, and South Korea by 2022, which will prove capital intensive so investors will want to keep an eye debt levels. However, the results are good for what is traditionally a quiet time of the year. Merlin needs to grow strongly, with a slightly pricey forward valuation of 17.1 times earnings, and a PEG of 4.2.

Investors are positive today, though. The dividend yield is just 2.2%, although with healthy cover of 2.7. Earnings forecasts look steady. Peter Stephens has previously backed it.

Troubled waters

FTSE 250-listed oil services company Petrofac (LSE: PFC) trades 70% lower than it did five years ago and today’s results will do little to convince investors it’s on the mend. Its stock is up just 0.79% today after  full-year 2018 results showed revenues fell 8.9% to $5.8bn, while underlying profits dropped 2% at $353m.

The group did make a reported net profit of $64m after impairments and exceptional items, against a $29m loss in 2018. It can also boast a new order intake of $5bn, with a $9.6bn backlog at 31 December 2018. Net debt has been eliminated and net cash now stands at $90m. However, net profit fell 21% to $285m.

Fraud fear

Petrofac remains subject to an ongoing investigation into alleged bribery and corruption by the Serious Fraud Office, and this continues to cast a shadow over the business. Investors have no idea what to expect, but prospective clients could be wary, which may hit future orders. This is an added worry as orders have been shrinking. However, Roland Head says the threat has been factored into the price.

Positives include a forecast yield of 7.4% with cover of 2.2, and a valuation of 5.9 times forward earnings. However, earnings forecasts seems bumpy. I won’t be rushing to buy this one.

The post One FTSE 100 stock I’d consider buying today, and one that can wait appeared first on The Twelfth Magpie.

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Merlin Entertainments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, with the company having what appears to be a sound strategy, it may offer impressive total return potential over the long run. Alongside another dividend growth stock which released an update on Tuesday, it could be worth buying instead of investing in property through a buy-to-let.

Improving outlook

The company in question is theme park operator Merlin Entertainments (LSE: MERL). It has released a trading update for the 40 weeks to 6 October, with organic revenue growth of 4.7% being delivered during the period. This was driven by new business development, with like-for-like (LFL) revenue growth being 1.4%. Within its Resort Theme Parks division, revenue growth was 9%, while its Legoland Parks recorded revenue growth of 6.4%.

The company opened a record 644 rooms during the period, as well as six new Midway attractions. It has seen strong guest demand for its themed accommodation, while an ongoing trend towards short breaks led to a 27.7% rise in accommodation revenue.

Looking ahead, Merlin is expected to report a rise in earnings of 10% next year, which puts its shares on a price-to-earnings growth (PEG) ratio of around 1.9. Alongside its capital growth potential, the company is also expected to grow dividends by over 10% next year. Since shareholder payouts are due to be covered 2.7 times by profit, the company’s dividend yield of 2.2% could become increasingly appealing.

Changing business

The investment prospects of Morrisons also appear to be improving. Under its current management team, the business has changed significantly. It is now focused on being a wholesaler, as well as a retailer. This has opened up supply arrangements with online offerings such as Amazon, while its resurrection of the Safeway brand has led to a supply deal with convenience store operator McColl’s.

The company has also been able to reduce its debt levels in order to create a stronger foundation for long-term growth. Its confidence in future levels of profit growth has allowed it to pay special dividends, while growth in ordinary dividends of 7.5% per annum is anticipated over the next two financial years. This puts the stock on a forward yield of around 3%.

Certainly, the outlook for the wider retail sector could be uncertain. As well as weak consumer confidence, no-frills operators such as Aldi and Lidl remain a threat, while sector consolidation could cause changing dynamics over the medium term. With high-single-digit earnings growth forecast over the next couple of years though, Morrisons seems to be an improving business which could offer high total returns in the long run. As such, now could be the right time to buy it.

The post Forget a buy-to-let! Morrisons is a dividend growth stock that could smash the FTSE 100 appeared first on The Twelfth Magpie.

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• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Peter Stephens owns shares of Morrisons. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended McColl's Retail and Merlin Entertainments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A rollercoaster ride

The Merlin Entertainments (LSE: MERL) share price has fallen by more than 30% from its 2017 high of 537p. But the stock rose by 3% in early trade on Friday after the theme park operator said that trading this year had been in line with expectations, despite a poor Easter.

Although this is good news, the company is still in recovery mode after last year’s London terror attacks. Visitor numbers to key capital attractions such as Madame Tussauds and The London Dungeons are still said to be lower than last year.

Management is “confident of a recovery over time” and I’d share this view. However, it’s worth noting that “parents under 35 with kids aged around seven” were said to be the main group avoiding London last summer. If this trend continues this summer, it could slow Merlin’s recovery.

A return to growth?

Broker forecasts for 2018 suggest that after-tax profits will be flat this year at about £210m. This would leave Merlin’s adjusted earnings unchanged at 20.5p per share, with a dividend of about 7.5p.

These figures put the stock on a forecast P/E of 17 with a forward yield of 2.2%. This doesn’t seem cheap, but earnings are expected to rise by 11% in 2019. A recent refinancing also means that the group doesn’t have any debt repayments until 2020.

If cash generation returns to historic levels, the stock could become attractive to investors looking for reliable dividend growth. As things stand, I think it could be a profitable investment over the next five years.

A global brand worth buying

Sales at fashion lifestyle retail group Ted Baker (LSE: TED) rose by 11.4% to £591.7m last year, while pre-tax profit rose by 12.3% to £68.8m. These figures suggest to me that the group’s global expansion remains on track and that it’s not having to cut prices in order to boost sales.

Despite this, the shares have fallen by more than 15% from its March high of over £32. In my view, this could be a buying opportunity, given the group’s strong financial record.

A very profitable business

Ted Baker has a number of the characteristics I look for in a high quality business. It has stable and attractive profit margins — operating margin has been stable at about 12% for a number of years.

Investment in the business generates attractive returns. The group gave a return on capital employed of 26% last year, a figure that’s consistent with previous years.

Finally, the company’s profits are fairly ‘clean’. Management doesn’t use large adjustments to boost headline earnings and net debt is kept quite low.

A buy and hold stock

These advantages combine to provide protection for shareholders if trading does go downhill. They also mean that if growth continues, the benefits should flow through to earnings and dividend payments.

Analysts expect earnings to rise by about 10% this year, with a similar gain pencilled in for 2019/20. These forecasts put the stock on a forecast P/E of 18.7, with a prospective yield of 2.6%. Although this isn’t cheap, I believe this is a quality business that should reward long-term investors.

The post 2 FTSE 250 dividend growth stocks I’d buy today and hold for five years appeared first on The Twelfth Magpie.

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Merlin Entertainments and Ted Baker plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The medical products and technologies company — a leader in wound care and continence products — fell out of the FTSE 100 in November in the wake of a disastrous trading update the previous month.

Back then, ConvaTec chopped down its full-year revenues forecasts on the back of disappointing performances from its new products, in addition to supply delays, the latter predicted to cancel out previous margin improvements. The firm printed a painful daily share price loss of 28% on the back of the news.

The business failed to snap back until Thursday’s bright, full-year trading statement, the share last trading 8% higher and at four-month peaks. I reckon this could prove a significant moment in the company’s investment story.

Bag it up

ConvaTec declared today that while the impact of the aforementioned supply problems will seep over into the current year, sales managed to beat expectations last year.

Group revenues rose 4.5% in 2017 to $1.76bn, although this was not enough to stop adjusted pre-tax profit from falling 3.3% year-on-year to $456.8m. ConvaTec attributed the result to “increased investment in growth” on top of the cost of listing the company in 2016.

Investors cheered news that revenues on an organic basis rose 2.3% in the last fiscal period, beating the company’s revised predictions of a 1-2% advance put out last year.

But ConvaTec is predicted to see earnings expansion cool from recent years. That’s due, in part, to lost orders related to last year’s supply problems as well as the firm’s attempts to tackle the resultant backlogs, both of which will continue during the first half of 2018, it noted.

That said, a predicted 14% rise for 2018 is nothing to be scoffed at. And the medical mammoth is expected to print a further 9% advance next year.

In my opinion, ConvaTec’s long-term profits outlook remains a compelling one and last year’s manufacturing problems, also in my opinion, will represent nothing more than a bump in the road.

I reckon a forward P/E ratio of 15 times represents an attractive level at which to tap into the FTSE 250 firm’s compelling earnings picture.

Not such a hot stock…

I’m not so optimistic over the earnings prospects of Merlin Entertainments (LSE: MERL).

The Alton Towers owner — which was also kicked out of Britain’s blue chip index at the end of last year — has fallen out of favour with share pickers. That came after announcing in October that like-for-like revenues had flatlined during the 40 weeks to October 7 due to “the series of terror attacks and unfavourable weather” during the period.

These troubles have led City analysts to predict that Merlin’s earnings will have fallen 3% in 2017, a rare dip if realised.

Now while City analysts are predicting that Merlin will return to earnings growth straight away (rises of 5% and 10% are estimated for 2018 and 2019, respectively), I’m not convinced as the issues that were prevalent in 2017 are in danger of continuing for much longer.

And I believe a prospective P/E ratio of 15.9 times is a little too high given these problems.

The post Are these former FTSE 100 shares now brilliant contrarian buys? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pre-tax profit for the year ending 30 September is now expected to be between £55m and £65m. That’s similar to last year’s figure of £59m, but is around 25% below consensus forecasts of around £83m.

Did you grab a bargain?

Those shoppers who did visit Debenhams over Christmas would have found plenty of bargains. After experiencing slow trading at the start of the first quarter, management decided to slash prices. This delivered a 1.2% increase in like-for-like sales over the six-week Christmas period, but it also resulted in a sharp fall in profit margins.

The group’s gross profit margin for the first half is now expected to be 1.5% lower than last year. That’s a big downgrade from October’s guidance for a 0.25% reduction over the full year.

A falling knife to catch?

Like most retailers, Debenhams is hoping that falling store sales will be offset by rising online sales. The group’s digital sales rose by 9.9% during the first quarter, so there’s some hope here.

However, the group has a large store estate, with many big shops on long leases. Reshaping this portfolio and cutting rents could take time. Another concern is that the group’s operating margin is already low, at just 3.1%.

Debenhams’ shares looked very cheap before today, on a forecast P/E of 6.5 with a prospective yield of 8.7%. Today’s news shows why — the risks were high.

After this update, I estimate that these shares trade on a forecast P/E of about 7.5. I’d also suggest that a dividend cut is now very likely. Debenhams looks likely to remain under pressure in 2018. Despite the stock’s apparent cheapness, I believe there’s better value elsewhere in the retail sector.

One more stock I’d avoid

Theme park operator Merlin Entertainments (LSE: MERL) has had a difficult year. In October’s trading update, management blamed “terror attacks and unfavourable weather” for a disappointing summer season.

The group’s shares now trade at around 345p, largely unchanged from when the company floated on the London market in 2013. Given that annual profits have risen from £145m to £211m over this period, you might think the shares now seem cheap.

I’m not convinced. Although I believe the firm’s trading is likely to gradually improve, I don’t see much attraction for equity investors at the current valuation.

Earnings are expected to rise by just 7% to 21.6p per share this year. That leaves the stock on a forecast P/E of 16 with a prospective yield of 2.1%. That doesn’t seem all that enticing to me.

Although Merlin generated an impressive 21% operating margin last year, this high level of profitability isn’t reflected elsewhere. The capital-intensive nature of developing theme parks and hotels means that return on capital employed (ROCE) is relatively low, at just 10%. Net debt of £1.2bn is also quite high at nearly six times trailing profits. I’d prefer to see this ratio below four times.

In my opinion, Merlin shares just aren’t cheap enough to be attractive. As with Debenhams, I believe there are better options elsewhere.

The post Is Debenhams plc a falling knife to catch after sinking 15% today? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

For now, I would urge caution. In the trading update management said supply issues and lower than expected sales of some new products would lead to organic revenue growth slowing to 1%-2% for the year to December. Unsurprisingly, disruptions from supply chain problems will also have an effect on the company’s margin improvement programme, although there was no firm guidance as to profit for the year.

For next year though, management said that “we are reviewing the financial implications for growth and margins in FY2018.” With management still not certain on the outlook for next year, I can’t say I’m tempted to buy ConvaTec shares at this point in time.

Even if supply chain problems are sorted out in a timely manner, I’d still be cautious around the company. Its saddled with net debt piled on by its former private equity owners that at the end of June was a full three times adjusted EBITDA. This severely constrains the ability to go out and make deals or return gobs of cash to shareholders.

And with competitive pressures rising in the ostomy market, which accounted for 30% of sales in H1, some analysts are expecting the firm’s margin improvement targets to be postponed or delayed. All told, with the effects of slowing sales not yet fully clear and competitive pressures increasing, I’d steer clear of ConvaTec at this point in time.

Share price on a roller coaster 

Theme park operator Merlin Entertainments (LSE: MARL) has also seen its share price plummet in recent weeks as the company’s trading update covering the peak summer months showed distressingly low revenue growth and led to management downgrading profit growth expectations for the full year.

Management laid the blame squarely at the feet of unfavourable weather and terrorism, which they say caused crowds to stay away from its Central London properties such as Madam Tussauds and the London Aquarium.

While it’s not farfetched to blame external events for the 1% drop in like-for-like (LFL) sales from its London-centric Midway attractions, I find this argument less convincing when it comes to explaining the 2.1% fall in LFL revenue from the group’s theme parks division. This includes non-London attractions such as Alton Towers and Thorpe Park and should have benefitted from the record numbers of international tourists who visited the UK and who didn’t visit Central London and Merlin’s properties there.

Either way, the result was the same with management guiding for LFL revenue staying flat year-on-year in 2017 and the firm deciding to shift capital investments away from its existing estate and into expanding accommodation offerings and opening up new properties. Obscured in all of this is the very good performance from the company’s Legoland Parks, which saw a stellar 3.4% rise in LFL sales during the period and have significant rollout potential. While Merlin’s valuation has decreased to 18.4 times forward earnings, I still find this a steep price to pay for a cyclical and capital-intensive business.

The post Are FTSE 100 stocks ConvaTec Group plc & Merlin Entertainments plc bargain buys near 52-week lows? appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Stormy weather

The Dorset-based leisure group is the second largest visitor attraction operator in the world, with brands including LEGOLAND, Madame Tussauds, Sea Life, Alton Towers and Thorpe Park. However, the fun stopped with the publication of its trading performance for the 40 weeks ended 7 October, which included the key summer trading period of July and August.

The report started off sunny with 12.4% revenue growth, or 5.9% at constant currency, helped by the successful opening of LEGOLAND Japan. Then the heavens opened, with management reporting flat like-for-like revenue performance on 2016 due to difficult summer trading in Midway London and European theme parks.

Terror alert

CEO Nick Varney said the summer started strongly but peak season trading was ruined by poor weather in Northern Europe and extreme weather in Italy and Florida. He added: “Our markets continue to be impacted by certain external shocks, not least terrorism which is currently at record levels of intensity in Europe. We also continue to face significant cost pressures, largely brought about by employment legislation, particularly in the UK.”

Merlin also downgraded forward guidance, predicting like-for-like growth in the low single-digits, offset by stronger new business development. The group also plans to cut spending by £100m and concentrate on expanding its successful accommodation portfolio. So is today’s drop a buying opportunity?

Ride the roller coaster

I am concerned by this drop in UK attendances, given that weakened sterling has driven record visitor numbers over the last year. Could Merlin have lost its magic touch? Another concern is that the group is highly exposed to weather and terror and has zero control over either of these threats.

However, it is fighting back with planned new attractions, including LEGOLAND New York in 2020, and planned Peppa Pig and Bear Grylls-themed locations. City analysts remain optimistic, forecasting earnings per share (EPS) growth of 16% in 2018. However, given its valuation of 21 times earnings, and lowly yield of 1.7%, you should belt up for a roller coaster ride.

Education, education, education

Education specialist Pearson (LSE: PSON) also reported today with its shares trading 50% lower than five years ago. However, they are up more than 8% on publication of its nine-month trading update, which detailed a good competitive performance as it accelerated its digital transformation.

It is a mark of low expectations that the stock is flying despite a 2% drop in underlying sales due to the continuing decline in its North American education market, partially offset by increased digital revenue. Trading is tough, but the market knew that already. Investors decided instead to concentrate on the positives, such as the third trading update in a row without a profit warning, and the company’s £300m share buyback programme.

Textbook case

My big fear is that this is a company in structural decline, as the rise of Open Education Resources (OER) in the US makes it much easier for universities to share course material and cut down on textbook costs. In direct contrast to Merlin, Pearson trades at just 10.57 times earnings and yields a whopping 7.75%. However, future growth prospects look fragile at best. Merlin wins by a magic mile, despite that pricey valuation.

The post One unloved turnaround stock I would buy today, and one I would not appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 global engineering group GKN (LSE: GKN) may not be the best known, nor the most glamorous business listed on London’s blue-chip index, but you’ll be surprised to learn how many of the company’s products we make use of in our everyday lives. In fact, every time we travel by road or air almost anywhere in the world, it’s highly likely that GKN is helping us on our way.

Donald Trump’s promise

The Redditch-based group designs, manufactures and services systems and components for original equipment manufacturers around the world. The initials GKN may not mean much, but then neither does the company’s former name Guest, Keen & Nettlefolds (GKN). But with 160 manufacturing facilities, service centres, and offices spread across six continents, the £6bn engineering giant is certainly a force to be reckoned with.

GKN serves both the aerospace and automotive markets, but it’s the former that’s hoping to get a boost from an increased US defence budget, thanks to Donald Trump’s promise to hike military spending in the coming years. But I’ve always viewed GKN as a solid long-term investment regardless of who occupies The White House. A diverse range of businesses and wide geographical spread have helped the group to deliver stable and steady growth over a number of years.

You’d expect such quality to come at a premium, but you’d be wrong. GKN trades on a lowly price-to-earnings ratio of 10 for the full year to December, proving that quality doesn’t always have to come at a price.

Let me entertain you

Merlin Entertainments (LSE: MERL) is another FTSE 100 company that perhaps most people are unfamiliar with, but may have unwittingly come across at some stage in their lives. The Dorset-based leisure group is Europe’s leading visitor attraction operator and the second largest in the world.

Merlin 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. In total, the group operates no less than 100 different attractions, along with 15 hotels and six holiday villages in 24 countries, and spread across four continents.

Brexit-proof?

In an era of uncertainty it’s perhaps wise to be wary of the cyclical nature of the leisure sector as we grow closer to our breakaway from the EU, and the upheavals that Brexit might bring. But 70% of Merlin’s profits now come from outside the UK, and the group’s strategy of portfolio and geographic diversification will only help to increase this figure in the coming years.

With Madame Tussauds in locations as far apart as Nashville and Delhi, and LEGOLAND Discovery Centres in Melbourne and Philadelphia, Brexit is less of an issue for it than it is for some UK firms. And as Merlin widens its footprint and visitor numbers to its vast array of attractions increase, profits should continue to swell. Right now I believe a price-to-earnings multiple of 21 may look expensive at first sight but actually undervalues the company, given the strength of its brands and promise of further diversification and expansion.

The post Why I’d buy GKN plc and this other great FTSE 100 stock appeared first on The Twelfth Magpie.

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of GKN. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The company increased revenues by 14.3% for the 19-week period to 10 June 2017. This figure was inflated by international sales, which were flattered by the weak pound – at constant currency, sales rose just 8.4%.

New retail locations were opened in Los Angeles, Paris and Shanghai, France, Germany, Japan, South Korea and the Netherlands.

Wholesale turnover increased 13.8%, driven by a strong performances in the company’s key markets the UK and North America. E-commerce remains a very promising avenue for growth, with online sales jumping 35.9%.

The licensing division, which has nearly tripled profits since 2012, gathered more momentum, with new licensed stores opening in Dubai, Kuwait and Mexico.

Ted Baker’s British brand evidently has global appeal, but the UK still accounts for the majority of profits. Given the uncertainty hanging around the UK concerning Brexit, weakened sterling and consequential headwinds for retail businesses, the shares have been marked down 20% since late January.

The company has doubled profits in the last four years and, given low sentiment, trades on a PE of only 23. I believe Ted Baker can survive a bit of economic uncertainty and therefore view the share price slip as an opportunity to participate in a British success story.

Merlin has got the magic touch

There’s a beauty in simplicity, which is probably why Lego has managed to become one of, if not the largest and most influential toy companies in the world.

It’s no wonder, then, that investors are keen to gain some sort of exposure to this dominant brand. That likely explains why shares in Merlin Entertainments (LSE: MERL), operators of Legoland theme parks, trade on a PE of 23.

The shares are clearly much sought after despite a terrible accident at the company’s Alton Towers park two years ago. It;’s not just the Lego effect but is also due to the resilient and diversified portfolio of events collated by the company, including Sea Life Centres, Thorpe Park and Chessington World of Adventures.

Like Ted Baker, Merlin could be hit by a slowdown in consumer spending in the UK. The company, which also runs Madame Tussauds and The London Eye, also tends to see volumes decline in the wake of terror attacks, which seem all too frequent unfortunately.

Today the company reported solid progress towards 2020 strategic milestones, including 250 rooms opened in 2017, and a number of new attractions on track to open this year. They include Legoland Discovery Centres in Melbourne and Philadelphia, Madame Tussauds in Nashville, Sea Life Centre Chongqing and finally the Little Big City that will open in Berlin.

Counterintuitively, visitor numbers to the UK increased earlier this year despite terror warnings. This was due to the weakened pound, thus boosting revenues in London-based attractions.

Conversely, the theme park estate in the UK has seen fluctuating visitor numbers in the wake of the attacks, but the company still believes it is on track to fulfil 2017 expectations due to around 70% revenue being derived outside the UK in an average year.

The company put in a strong financial performance last year, generating a record £433m cash from operations, while turning a £211m profit. The growth plan seems strong and revenues are forecast to grow 11% next year, although I’m cautious about the £1.1bn debt pile. It is important to note that this debt level has held steady for years now and so does not seem to be an immediate problem.

The post Compelling growth on show at Ted Baker plc and Merlin Entertainments plc appeared first on The Twelfth Magpie.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Ted Baker plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Intu Properties (LSE: INTU) is facing imminent relegation from the UK’s leading index as the owner of some of the largest shopping centres in the UK feels the heat from online peers such as Amazon.

Over the past 12 months, shares in the company have lost nearly 10% excluding dividends and now trade at a 32% discount to the book price of Intu’s properties.

As property is generally considered to be a defensive asset, such a gaping discount shows just how pessimistic investors are about Intu’s prospects. The company’s customers, namely retail brands that own space its shopping centres, are facing multiple pressures, such as the rising minimum wage for their staff, stagnant wage growth among their own customers, and the impact of e-commerce on profitability. Put simply, this is bad news for Intu. The company needs to keep rental income flowing to continue to service its debt, which it has had problems with in the past. With trends in the retail sector changing, lenders may be less inclined to offer the company a helping hand this time around.

Attractive dividend

The one redeeming feature of Intu is its dividend yield, which currently stands at 5.1% and is covered by earnings per share. However, while this yield may look attractive in the low-interest-rate environment, it’s worth considering how much longer the company will be able to return so much income to investors considering the pressures facing the business.

All in all, this is one FTSE 100 business I would avoid.

Consumer pressure

Merlin Entertainments (LSE: MERL) is another FTSE 100 champion I’m not keen on.

Merlin has achieved steady growth over the past four years with earnings per share rising from 16.9p to 20.8p for 2016. City analysts are projecting further earnings growth of 6% for 2017 and 15% for 2018, taking earnings per share to 25.5p. Pre-tax profit is expected to come in at £350m for 2018, up from £172m for 2013.

Nonetheless, despite this growth, shares in Merlin look expensive. At the time of writing the shares trade at a forward P/E of 22.8, falling to 20 for 2018. As noted above, it’s no secret that rising inflation and stagnating wages are putting pressure on consumers and as this trend continues, it is reasonable to expect people will give up luxuries such as expensive visits to Merlin’s attractions.

Consumer demand is unlikely to drop off completely overnight but even a slight slowdown would be extremely damaging for Merlin’s share price considering the high growth multiple the market is awarding the business.

The post 2 high-risk FTSE 100 stocks I’d probably avoid appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
• Up 446% in 12 months! What’s next for the Ceres Power share price?
• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.