Burford taps a rich theme

Smaller Companies

NIGEL WRAY, the ever-entrepreneurial chaiman of the Burford Holdings property group, always looks for an angle when he does a deal. And Burford is sitting on what could be the most angle-rich property deal of the year: the Trocadero entertainment complex between Piccadilly Circus and Leicester Square in central London.

Burford has just won planning permission to turn 100,000 square feet of the site into Europe's first urban virtual reality theme park. There is very little in the Burford share price for this project, yet back-of- envelope calculations suggest it could double group profits and transform the value of the site.

More cynical investors may take the view that, even if the project is not a rip-roaring success, the shares may enjoy a good run as publicity builds up before the new centre opens in the summer next year.

The disastrous Euro Disney experience may have put people off theme park- type investments, but Burford and its partner, the Japanese Sega games group, look better placed to succeed.

The location is phenomenal: the Trocadero attracts 16 million visitors annually, half of them tourists. Sega's first virtual reality theme park, Joypolis at Yokohama, is highly profitable, with 1.5 million visitors in the first year spending an average pounds 30 a head.

The spend there is higher than would be expected in London ,but the location is far inferior because of the high land costs in Japan.

Burford's chief executive, Nick Leslau, says the equivalent location to Yokohama in London would be Croydon.

Madame Tussaud's, the waxworks near Baker Street in central London, attracts 2.5 millon visitors a year. However, Tussaud's charges for entry. It costs nothing to wander around the Trocadero.

Burford is providing the space and Sega the equipment. Burford is spending pounds 17m to pounds 20m improving the infrastructure, and the total cost of the centre is expected to be about pounds 45m. Annual running costs are likely to be between pounds 7m and pounds 8m. Any revenue above that will be shared equally between Sega and Burford, giving the latter an open-ended source of profits rather than a safer but much less exciting fixed rental.

It doesn't take much juggling with numbers, assuming 1.5 m illion visitors and an average spend of pounds 20, for Burford's profit share to reach pounds l0m or more, comparing with last year's reported profit for Burford of pounds 14.7m. If visitors equal those at Tussaud's, the group's profit share will exceed pounds 20m.

Mr Leslau, a positive but cautious man like Mr Wray, is convinced that the project will be a huge success.

There will be seven main rides using the latest technology to replicate the "white-knuckle" thrillers, like Thunder Mountain at Euro Disney, in a more confined space. Riders will also be able to interact on the ride by shooting down evil aliens with guns that go bang and even recoil convincingly.

The centre should have magnetic appeal for families and tourists. Once in the centre, they will find special areas for video games, fast food and other spending opportunities. This is in addition to the centre's existing facilities, including the cinema theme restaurant, Planet Hollywood, the Guinness Book of Records exhibition and the MGM cinema complex.

Even without Segaworld, Burford has proved a remarkable investment at a difficult time for the UK property industry. Since 1987 gross assets have risen from pounds 8m to about pounds 430m, with the rent roll running at pounds 40m against annualised net interest of pounds 18m. The dividend has climbed from 0.43p a share in 1988 to 1.95p for 1994, and net asset value has grown from 43.2p in 1990 to 90.3p for 1994. Analysts forecast a further advance to 102p for 1995.

This means buyers at 108p are paying a modest premium to underlying net asset value for the potential of Segaworld and for Burford's expertise in continuing to drive assets, earnings and dividends higher.