3 SHARES FOR A JUNIOR ISA

It can be hard enough to get a child to sit down and focus on maths homework. Getting them to show an interest in a Junior ISA might seem impossible.

One client got in touch with an innovative idea: invest in companies the children recognise. That got us thinking. What would we have been excited about owning as children?

DISNEYThe world’s largest film producer went through a bit of a rough patch in the late 1990s and early 2000s (post-Lion King but pre-Finding Nemo). Remember the spectacular Treasure Planet in 2002? No, neither do we. It forced the company into a $74m write-down.

Fortunately, its partnership with Pixar was already starting to deliver results. Toy Story 2 was released in 1999, and Finding Nemo followed in 2003.

After a stormy relationship, Pixar CEO Steve Jobs (yes, he of Apple fame) announced the animator would walk away from the partnership in 2004.

Disney couldn’t risk its best film franchises falling into rival hands and bought the studio for $7.4bn.

Deals like this, especially for studios with bags of intellectual property, have since become a central plank of Disney’s strategy. It acquired Marvel Entertainments in 2009 (producing Avengers, the 5th highest grossing film ever) and Lucasfilm in 2012 (Star Wars: The Force Awakens, the 3rd highest grossing film ever).

IMPORTANT INFORMATION: MARCH 2018Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters and correct as at 5 March 2018. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Tax rules

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Get your children interested in investing.

Mickey Mouse’s current target is Rupert Murdoch’s 21st Century Fox. The $52.4bn deal would bring the world’s two highest grossing films (Avatar and Titanic) and TV programs that include The Simpsons and Modern Family under the group’s wing.

Disney would also get Fox’s global TV network. That’s key, because Disney is much more than a film studio. The US Media Networks business, which includes the Disney Channel, ABC and ESPN, accounted for 47% of profits in 2017.

Extra channels increase the reach of Disney’s content, with the deal also giving it control of streaming service Hulu. With cinemas increasingly empty and competition from Netflix and Amazon, having this direct access to viewers is vital for future success.

The deal has the potential to create a sports broadcasting titan, joining Fox’s Sky with Disney’s ESPN. Fox currently has a 39% stake in Sky and is midway through

a deal for the outstanding 61% – all of which would pass to Disney. However, its offer has recently been outdone by rival Comcast. Disney might have to make a bid for Sky itself if it wants to become Europe’s leading sports broadcaster.

Over the long term Disney has demonstrated an excellent ability to create and reinvigorate world class content. All being well, the Fox deal should help it monetise that unrivalled back catalogue and drive future growth.Although bear in mind that these kinds of mega deal always bring extra risks.

If all goes to plan, analysts expect Disney’s earnings to grow by over 7% a year out to 2020.

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WALT DISNEY DEALS

Past performance is not a guide to future returns. Source: Thomson Reuters Eikon

WALT DISNEY COMPANY SHARE PRICE AND CHARTS

MERLIN ENTERTAINMENTSLEGOLAND, Alton Towers, Thorpe Park, Warwick Castle, Madame Tussauds, SEA LIFE – it reads like a summer holiday wish list.

It’s actually a selection of the attractions Merlin runs as the world’s second largest operator of theme parks and attractions (after – appropriately enough – Disney).

Unfortunately, recent events haven’t been kind.

Last year’s terrorist attacks reduced visitor numbers, with performance at key attractions such as the London Eye and London Aquarium lagging. Poor weather in Europe, including flooding at Italian theme park Gardaland, also hit profits.

Those results have dented the share price.

But it’s not just short-term headwinds that’s got investors worried. The group is splashing out on new parks, and operating expenses are increasing faster than revenues, with debts also rising. The group saw a record 66m visitors in 2017, but management need to show growth can be delivered while keeping a handle on costs.

However, long term we think Merlin has significant potential. Benefiting from

economic tailwinds with some cracking brands to help it along the way.

The LEGO brand is fantastic – and very lucrative for Merlin. While 2017 was a tough year for the wider group, LEGOLAND still managed to deliver a 12% increase in profits thanks to a new park in Japan. LEGO parent KIRKBI Investments is Merlin’s largest shareholder so should act as long term guardians of the brand.

Meanwhile the smaller city centre attractions, collected under the ‘Midway’ division, have plenty of scope for international growth.

Celebrity waxworks and aquariums work in any language, and at present there’s just 48 SEA LIFE and 23 Madame Tussauds globally. A growing and increasingly wealthy global population should increase demand for local leisure activities, so the division shouldn’t bump up against the side of the tank anytime soon.

While we’re at it, it’s worth noting Merlin offers one of the better shareholder perks. Holders of 317 shares get 40% off an annual Family Merlin Annual Pass. These sorts of perks shouldn’t guide investment decisions, but are a nice bonus. See here for more details.

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Past performance is not a guide to the future. Source: Merlin Annual Report

MERLIN ENTERTAINMENTS SHARE PRICE, CHARTS AND RESEARCH

ACTIVISION BLIZZARDOne for the older offspring – and a fair few adults – Activision Blizzard will be familiar to any avid gamer.

The developers (which merged in 2007), are best known for Activision’s ‘FPS’ Call of Duty and Blizzard’s ‘MMORPG’ World of Warcraft – that’s ‘First-Person-Shooter’ and ‘Massive Multiplayer Online Role Playing Game’ to the uninitiated.

It also owns mobile developer King. King has over 200 titles to its name, including the addictive Candy Crush game that’s the bane of commuters everywhere.

We like the mix of games console, PC and mobile gaming. In a rapidly changing industry the group has fingers in every pie and that’s delivered average profit growth of 8.8% a year over the last decade.

However, the real excitement lies in the budding world of esports.

Like traditional sports, esports see professional gamers compete in front of an audience (which could be on TV, online or in stadiums).

It’s a small industry at present, with revenues of just $0.7bn a year. However, there’s lots of scope for growth. Revenue per fan is just $1.80, compared to $54 for traditional sports, while the number of fans is growing rapidly. esports viewership grew by 24% a year between 2014 and 2017. According to Activision Blizzard CEO Robert Kotick, esports’ share of millennials is two or three times higher than any of the big four US sports . Millennials are a difficult group for advertisers to reach, since they consume less traditional media than older generations. Add a significant bias towards Asian markets , and that makes esports very attractive to advertisers all over the world.

Esports accounts for a fraction of group revenues at the moment. But the developer is investing heavily.

A league based on the Overwatch game launched in January and attracted over 10m viewers in its first week. There are 12 teams in the global league, including one London based team (should you or the kids fancy cheering on a home side).

Owning the rights to the games themselves should serve Activision Blizzard well in the long-run.

However, expansion into new markets always comes with added risks, and esports doesn’t currently contribute significantly to group profits. It could be years before the segment becomes robustly cash generative.

Fortunately traditional gaming should be more than able to carry the load. The group even pays a dividend, something of a rarity in the gaming industry, albeit a fairly miserly 0.4% at present. For the patient investor, Activision Blizzard could represent a long term opportunity.

ACTIVISION BLIZZARD SHARE PRICE AND CHARTS

OPEN A JUNIOR ISA• Invest up to £4,128 per child per

tax year – free from UK income tax and capital gains tax

• Anybody can contribute – friends and family can add money to the Junior ISA

• Money in a Junior Stocks & Shares ISA is ring-fenced until the child’s 18th birthday, so there’s plenty of time to maximise growth if you start early

FIND OUT MORE ABOUT JUNIOR ISAS

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Source: Newzoo, 4th quarter 2017

BREAKDOWN OF THE GAMING MARKET