Valuing Paragon Entertainment

Disclaimer: I have no licence to distribute financial advice, so the following piece should be viewed as being for entertainment purposes only.


For an overview of Paragon Entertainment, look here: 

http://themaskedstocktrader.blogspot.co.uk/2015/09/paragon-entertainment-analysis.html



I've written about my bullish views on Paragon Entertainment before, but in this short piece I intend to present a view of the financial potential this company has for delivering high revenues and profits within their industry.

• Updates on the MAJID AL FUTTAIM LEISURE & ENTERTAINMENT LLC deal that covers Saudi Arabia, Egypt, RAK and Dubai (1)

• Updates on the Hamleys Mosco project (2).

• Further news regarding their recently completed project with the National Museum of Kazakhstan in Astana (3).

Majid Al Futtaim Leisure & Entertainment LLC:

To kick off, Mark Pyrah, CEO of Paragon Entertainment said the following about this partner:

'We are delighted to be working with MAF to create the very best leisure and entertainment across the MENA region and this Framework Agreement allows us to provide the very best support for this impressive client.' (1).

This to me potentially implies a couple of things:

1. Mark Pyrah thinks that they may be prepared to spend lots of money.
2. He may well be a corporate suck-up.

Excluding the second point, it's slightly difficult to value a deal like this when you're given so little information about the attractions Paragon Entertainment would be providing. Nevertheless, we can try and get a glimpse of the potential by running some potential numbers across the resorts mentioned in the RNS.

In the RNS, the information we are given is the following:

"Paragon will be offering attractions design and build services around MAF's existing Magic Planet, Little Explorers, Ski Dubai, WAHOOO! Water Park, Playnation and Aquaplay projects as well as working on new concepts." (1)

Well, across the six mentioned projects that Paragon will be working on (we'll ignore the "as well as working on new concepts" for the moment), let us assume that Paragon makes £150,000 in profit - this is pretty small really, because just a ferris wheel costs between $20,000-$60,000, or £13,170-£39,506 and firms don't hire in contractors to design and build products they can order on Alibaba (4).

If we assume for a moment that this figure is true, you get a profit figure from that one overall project in the region of £900,000 or 19.7% of the current market capitalisation of the company (£4.4m as of 02/10/2015) - so even with small figures being thrown around the potential for Paragon Entertainment to capitalise heavily on their investments in these projects is clearly very large.

If in reality we upscale this slightly to a level that perhaps better befits the reality of employing specialists in the specialist entertainment construction sectors, to a profit per site of £250,000 you then leave with a profit of £1,500,000 over the timescale of the project.

Now, in reality we currently have no idea how much they're receiving for these projects and they may also not get paid for the projects all in advance (this rarely happens in any industry) and or complete them all at once, but the point really is that with a market capitalisation currently of £4.4m Paragon Entertainment doesn't have to make very much money out of these projects in order for this to translate into huge potential earnings in relation to the company's current market value and it's worth remembering that this is only for one project!

Hamleys Mosco Project/National Museum of Kazakhstan:

Quite frankly, we haven't been given enough information to put a value on these projects, so for the sake of consistency let us revert to our low figure of £150,000 profit per project. This still (added with the possible profits from deals with Majid Al Futtaim Leisure & Entertainment gives you a possible total profit figure across all of the projects of £1,750,000 or 39.7% of the total market value of the company.

Regardless of how you value these deals (I have done so very crudely) with the sheer number of projects the company is undertaking, in combination with the potential yields each contract has to offer, it's hard (in my eyes at least) not to remain bullish on Paragon Entertainment while the company remains at this value in the current market place.

As ever though, do your own research.

Enjoy,

The Masked Stock Trader

Sources:

1. http://www.lse.co.uk/share-regulatory-news.asp?shareprice=PEL&ArticleCode=b5t3w216&ArticleHeadline=Framework_agreement_signed

2. http://paragonent.com/media-centre/corporate-news/hamleys-moscow-named-best-designed-store-of-the-year-at-2015-world-retail-awards

3. http://paragonent.com/documents/PARAGON_NEWSLETTER_SINGLE_PAGES_MAX_3.pdf

4. http://www.alibaba.com/showroom/ferris-wheel.html