Character Group predicts Christmas toy shortage – guardian.co.uk

December 2, 2009

A host of children will be disappointed on Christmas morning, according to toy specialist Character Group.

The company is predicting shortages of a number of key products, in particular its Go Go Pets – robotic hamsters which presumably live longer than the real thing – and Peppa Pig products. It also hopes for good things from its HM Armed Forces toys and next year, a new range of Doctor Who action figures to coincide with the new series and indeed, new doctor.

Meanwhile, though, its full year results have shown the scars of the collapse of Woolworths a year ago. Stock intended for the retailer for Christmas 2008 and spring this year ended up swamping the market, as the company decided it needed to keep its cash flow in good shape.

So the company recorded a pretax loss of £2.17m – including a £1m bad debt from Woolies – compared to a £5.14m profit the previous year. But the company is optimistic it is over the worst and – without being a hostage to fortune – is hopeful of good Christmas trading.

Its shares have dipped 2p to 65.5p on the news, but house broker Charles Stanley has begun coverage of the company today with a buy recommendation. Analyst Richard Hickinbotham said:

Character enters 2010 in a markedly improved position than a year ago when the demise of Woolworths had a major adverse impact. The ensuing focus and concentration on branded product has enabled the business to achieve second half profitability and also to grow its market share significantly [from 3% to around 5%].

Despite a still difficult retail environment, management has proposed a 1p final dividend which reflects a growing confidence in the outlook into 2010. New ranges for Doctor Who, a major line in earlier years, and Fireman Sam will join the line up for next year with Go Go Pets also expected to deliver exceptional growth alongside the rest of Character’s branded offering that includes Peppa Pig, HM Armed Forces, Postman Pat and Scooby Doo.

Character clearly looks to have passed its nadir and a PE of 5.8 times 2012 earnings per share fails to reflect the improved outlook and cash generative nature of the business. Net cash at the year end increased to £0.9m despite the company repurchasing £2.1m of shares for cancellation from 3i at 30.15p.

We initiate with a buy recommendation and price target of 90p. The next news from the company is at the AGM in January when we would expect a positive update.

Go go pets hamsters are cute. No wonder why parents bought this for their kids.


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