UBS put the skids under Merlin Entertainments PLC (LON:MERL) shares on Thursday after it cut its rating, target and estimates for the leisure group on concerns over customer review data for its Midway theme parks.
The Swiss bank downgraded its recommendation for the FTSE 250-listed firm to ‘sell’ from ‘neutral’ and reduced its target price to 295p from 380p, with the shares currently trading at 322.10p, down 6.5% on Wednesday’s close.
READ: Merlin Entertainments like-for-like revenue grows, expects to meet 2018 outlook
In a note to clients, UBS’s analysts said: “We are incrementally more cautious around the Midway recovery with the latest UBS Evidence Lab customer review data showing a continued decline in average reviews across Midway, including among the key attractions.”
They added: “We now have greater concerns that this trend could be the result of poor investment or operational decisions, with cost-cutting and a focus on new business development potentially leaving the core profit drivers of Midway under-resourced. If our data is a leading indicator of site performance, it suggests further weakness in 2019.”
The analysts said they have reduced their forecasts for Merlin - which also runs Madame Tussauds and the London Eye - by 6% for 2019 reflecting expected lower like-for-like growth from Midway and LEGOLAND.
They added that their downgrade to sell comes after the stock's relative outperformance in 2018.