Character (CCT) was blindsided last year when Toys R Us filed for bankruptcy, forcing it to issue a profit warning shortly after the announcement. But the toy manufacturer also had to contend with discounting by industry rivals, as they drew down excess inventories. The inevitable impact on trading – Toys R Us was CCT’s third-largest customer – severely constricted earnings in the first half of the year, but the group is clawing its way back.
Management attributed the recovery to two factors. The first was the highly cash-generative nature of the business – operating cash conversion remained above 100 per cent in the year, even as the bankruptcy hit profits. Secondly, the other toy retailers have already picked up Toys R Us’s market share, making further disruption unlikely.
Since the financial year-end, the group has expanded its European operations with the acquisition of a 55 per cent stake in Danish toy distributor Proxy. Since the completion of the deal, Proxy has secured distribution rights for Funko toys – which includes figurines from the hugely popular Fortnite game – in the Nordic region. Management expects the deal to be earnings enhancing in the enlarged group’s first financial year.
Broker Panmure Gordon increased its forecasts following the release of the results and now expects adjusted pre-tax profit of £15.9m, giving EPS of 47.6p for August 2019 (from £12.9m and 44.4p in FY2018).
| CHARACTER (CCT) | ||||
| ORD PRICE: | 516p | MARKET VALUE: | £109m | |
| TOUCH: | 510-522p | 12-MONTH HIGH: | 540p | LOW: 413p |
| DIVIDEND YIELD: | 4.5% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 150p | NET CASH: | £15.6m | |
| Year to 31 Aug | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 98.0 | 7.1 | 27.7 | 6.60 |
| 2015 | 99.0 | 12.3 | 48.6 | 11.0 |
| 2016 | 121 | 13.1 | 50.3 | 15.0 |
| 2017 (restated) | 115 | 13.4 | 47.5 | 19.0 |
| 2018 | 106 | 11.6 | 45.6 | 23.0 |
| % change | -8 | -13 | -4 | +21 |
| Ex-div: | 3 Jan | |||
| Payment: | 25 Jan | |||
