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The Character Group: Ups and downs yet dividends all around for Peppa Pig toymaker

Publication Date: 13 Jun 2018 - By Gaurav Sharma (Editor ReachX) By Gaurav Sharma (Editor ReachX)
Actionable
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Equity Fundamental Equity UK Consumer

For many investors, a company going by the name of Character Group (LON:CCT) might not be instantly recognisable. However, its products might well be, for the London AIM-quoted outfit makes licenced toys in the UK for several popular children’s TV characters such as Peppa Pig and Teletubbies. 

If the last 12 months are anything to go by, life for for the company has been pretty interesting, interspersed with highs and lows and their predictable impact on its share price direction. 

In September 2017, much to the joy of investors, the company announced that it had won the right to make and distribute Pokémon products in the UK, sending its share price soaring. While investors were still soaking in the positive development, the Character Group hit the wires again a mere four weeks later revealing that the demise of the Toys ‘R’ Us retail chain was having a negative impact on its business. 

While the toy retailer’s Chapter 11 Bankruptcy stateside was rocking the retail world at the time, it did not hit its UK arm. But in an age where perception is everything, British public opinion that Toys ‘R’ Us was on the decline dented trading and hit the Character Group via a domino effect. 

The earlier positive episode saw the company’s share price jump by 8%, while the later negative development with “knock-on repercussions” saw it slide by 16% intraday, wiping out earlier gains, and more, as the Character Group acknowledged its performance over the coming trading period would be "significantly lower than market expectations". 

Those figures are now in public domain with the company having filed a pre-tax profit of £4.5m for the half-year to the end of February (2018); a decline of 37% over a comparable six-month period the year before. Yet, investors do not appear to be disheartened, with the Character Group’s share price rising steadily since the start of the year from 445p on 2 January to 525p at the time of writing. The level is not far from its 52-week high of 544p recorded in the wake of the Pokémon licensing announcement. 

One thing counting in its favour is that the Character group is largely viewed as reliable income stock with a sturdy cash pile. In February, the company said its net cash reserve stood at £14.3m, as it declared an interim dividend of 11p per share, marking a dividend uptick of a penny every six-months going back to its July 2016 payment of 7p. 

Deeper digging reveals that over the last decade Character Group has returned an average of 3.00% per annum to investors in its dividend payouts; a period that includes the wider leisure market downturn between 2008 and 2010, when consumers' discretionary spending hit record lows both during, and after, the global financial crisis (2008-2010). 

Of course, dividends are not the only driver here for the company, with a current market capitalisation of £111m and counting. It’s a question of business longevity as well and the Character Group scores on that count too with a portfolio of licenced toys that includes several much-loved children's franchises. Alongside Peppa Pig and Pokémon, are Postman Pat, Scooby Doo and The Teletubbies, to name a few characters. 

The latter, according to the Character Group, still remains its one of its top-selling toy brand over two decades after the show's original air date on British TV screens.

That said, the retail climate remains challenging and unexpected shocks like Toys 'R' Us could yet hit the company. However, given its robust evergreen toy porfolio, there are several reasons to be positive about the Character Group.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Gaurav Sharma Editor ReachX

 

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