Lego/IPO: more welcoming to day- trippers than investors

A trip to a Lego theme park will be obligatory for some families this holiday weekend. The appeal of the toy is that it can turn into anything a child wants. Maintaining the Danish company’s magic formula is vital for Kjeld Kirk Kristiansen, the founding family patriarch now overseeing a handover to the fourth generation.

That move has come with the tiniest hint of a future initial public offering. The bulk of the economic ownership will remain within the family. Kirk Kristiansen has meanwhile transferred just over a third of the votes in family holding company Kirkbi to a non-profit foundation, K2. This has stated that it would not block any listing unanimously supported by the family.

A listed Lego would be a visitor attraction in itself. The toy bricks and their spin-offs are a big commercial success. Sales of $9.3bn and operating profits of $2.6bn last year have both risen by 60 per cent since 2019. Profit margins are double those of Dungeons & Dragons maker Hasbro and higher still compared to Barbie owner Mattel.

Selling brick kits remains important but visitor destinations are a growing part of the mix. An IPO would be worth more with these included. Properties include the Legoland theme parks acquired by Kirkbi when it bought a controlling stake in Merlin in 2019. Another offshoot is Legoland Discovery Centres, a growing venture that repurposes old retail space as activity sites.

Academic David Robertson sees this as part of a broader emulation of Disney’s early days. This involves creating characters and stories that are monetised via multiple channels.

Assuming that it grows strongly, Merlin would be worth $8.5bn on a 20 times multiple of operating profit. A lower multiple for the toy business should be expected. US toy makers trade on about 11 times. That would value the mini brick business alone at $33bn.

In the unlikely event that Lego ever opens its doors to investors as well as day-trippers, they should expect to pay a steep premium for stock.