Character Group – bought for my Modified price earnings ratio portfolio

PUBLISHED: Oct 29 2019 @ 04:24 | Comments (0) |

I’ve purchased shares in the toy designer and distributor Character Group (LSE:CCT) at 350.6p (market capitalisation is £3.506 x 21.3m shares = £74.7m). These shares were trading at £5.80 as recently as August. The fall was caused primarily by the merger of the UK’s Entertainment One with the US toy company Hasbro.

The connection here is that Entertainment One owns the intellectual property over Peppa Pig and Ben & Holly. For a decade and a half EO has granted a license to Character allowing it to design Peppa Pig toys etc., get them made in the Far East and sell them in the UK and other countries.

So successful has this franchise been that it’s reckoned Peppa Pig products account for something in the region of one-fifth to one-third of Character’s turnover. Naturally, Hasbro will want to produce its own range of toys based on the popular TV and film characters it now owns. Thus, Character will lose a goodly slice of its business.

But I think the sell-off has been overdone. Character has a history of phases of toy favourites coming and going; one year it is Scooby Doo, another its Postman Pat or Bob the Builder.

The key members of the management team each have three decades of experience. Adept at evolving the company to cope with changing fads and fashions they are constantly on the prowl for the next hot character.

Besides, about half of sales comes from product brands created in-house, such as slime and Squishes.

Also, the current Peppa Pig deal with EO has been extended to June 2021, so sales are not going to drop off a cliff.

Earnings and dividends

Yearend 31 August	Earnings per share, p	Dividends per share, p	Revenue, £m	Profit after tax, £m
2019H1	21p (2018H1: 17p). Expected for year: 43p	13p (2018H1: 11p) Expected for year 25p	£58.8m (2018H1: £50.5m). Expected for year £124.6m	£4.2m (2018H1: £0.5m). Expected to be approx. £9m for year.
2018	45.63	23	106	9.6
2017	47.46	19	115	10.0
2016	50.3	15	121	10.8
2015	48.56	11	99	10.2
2014	27.66	7.25	98	5.9
2013	3.05	6.6	67	0.7
2012	25.58	6.6	75	5.8
2011	28.47	6.0	95	6.8
2010	20.12	4.0	85	6.2

There is already clear guidance on the numbers for the year to 31 August 2019: Earnings are expected to be 43p and dividends 25p.

Cyclically adjusted price earnings ratio

The CAPE, using average earnings per share over ten years in the denominator, is

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