SHARES: BLUE CHIP: Spell fading at Magic Kingdom

Euro Disney's improvement this year is flattered by comparisons with 1994, many analysts believe
ANYONE who followed this newspaper's advice to buy shares in Euro Disney at the turn of the year at 136p should be celebrating the theme park's first profits, announced last week. The company is now expected to return to the black in the current year, 12 months ahead of schedule.

The shares gained 9p to end the week at 220p, representing an 84p gain in just over six months. The price is still a long way from the 707p at which the shares were floated in 1989. Since the park opened in 1992, shareholders have experienced not so much a roller-coaster ride as a headlong flight through the chamber of horrors.

None of Mickey Mouse's movies ever went beyond budget the way the park's building costs did. Fifteen shades of pink paint were rumoured to have been tried in order to make the Magic Castle stand out from the fog and mud of France's Marne Valley, previously best known for hosting some of the messier episodes of the First World War. Determined to cut a better deal than Disney had in Tokyo, the company loaded the park with debt just as French interest rates rose to prop up the franc against the mark, and then recession hit Europe.

That made admission costs look extortionate in sterling terms, and even the French and Germans drew the line at the pounds 2 ice-creams and pounds 30 sweatshirts. Catering and souvenirs were supposed to be big earners, but it was standing- room only at the fountains, where the drinking water was free. Meanwhile, a trip to Disneyland in Florida or Britain's Alton Towers looked relatively cheap.

Claims that Euro Disney would be not so much a cultural Chernobyl as a cultural Vietnam proved wide of the mark, however. Unlike the US in Saigon, Disney could not stand the damage to its good name that would have followed a humiliating evacuation from the Marne. So it temporarily gave up some of its royalties, the bank debt was re- scheduled, and a pounds 725m rights issue in June last year at FFr10 (120p) was backed by one of Saudi Arabia's more successful entrepreneurs, Prince al-Waleed bin Talal bin Abdulaziz, giving him up to 25 per cent of the company.

Admissions fell by 10 per cent during the course of the year, but a cut of more than 20 per cent in ticket prices has boosted revenue in the first half of 1995. Against a background of a much improved European economic outlook, the company last week reported net profits of FFr170m for the three months to June, with a 17 per cent rise in visitor numbers - though that is flattered by the fact that bookings last year were hard-hit by fears that the park would close. At 220p, the share price is no longer saying the gates will slam on the Magic Kingdom, and indeed they are unlikely to do so.

However, many of the original problems remain. Admission and hamburger prices can be cut, but the company's FFr16bn of debt cannot. Euro Disney is currently benefiting from the interest-rate moratorium agreed as part of last year's restructuring. This is currently worth about FFr600m a year, but declines in value to virtually nothing by 1998, after which the interest margins are due to increase. Disney's hefty management fees also return from 1998. Admissions of 10 million this year will also be boosted by the opening of the FFr750m-plus Space Mountain. The company cannot afford any more big eye-catching attractions for a while.

"Just to compensate for the end of the interest-rate and management-fee moratoriums, we need to see admissions up to 12.5 million by 1997," says Geoff Simmons at the distressed-debt trader Klesch & Company, a previous and potential buyer of Euro Disney bonds. And he notes the potential competition from Sega's Games City in London and Port Aventura in Spain. Also, a new theme park will open in Dusseldorf next year.

Equity analysts are cautious about the shares. Few in London follow the stock, as most of the trading is in Paris. "I struggle to find a single institutional investor in the shares," says Nigel Reed at the French bank Paribas. "Most are held by Disney, Prince al-Waleed and small French investors, although there are perhaps several tens of thousands of private British shareholders."

He believes the market has failed to see how comparisons with last year flatter both admission figures and the bottom line figure after tax and exceptionals. It is time to wave Mickey and chums goodbye.

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