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On Friday I travelled to London to attend Character Group’s (LSE:CCT) AGM, and to discuss some key issues with directors after the formal meeting. They were very generous with their time. Jon Diver, Joint MD, was willing to chat for half an hour after the meeting; Kiran Shah, FD, and Michael Hyde, MD for the Far East, each spent quarter of an hour with me. I’m very grateful for their welcoming attitude to a lowly private investor and for being so keen on informing shareholders.
Toy market decline
Before the 11am meeting started Mr Market had pushed the share down 15%. This was in response to a 7am trading update which described the Christmas period as extremely challenging with the UK toy market contracting for the second successive year.
A little more on that: in the meeting the directors said they estimated toy sales to be around 15% down over two years and a further 7-9% might occur. Worldwide, the toy market is in decline, but not as much as in the UK.
They were asked why the volume of toys sold falls like this. Answer: there are trends in fashions, crazes come and go. In the past Character has ridden some good trends, e.g. slime. This year there was no craze to boost sales. Ups and downs are all part of the game.
Optimism for the months ahead
The trading update also stated, “We enter the 2020 calendar year with a very strong product portfolio and, although the first half results will be below last year, we anticipate that the Group will deliver one of our strongest second half performances to date.”
The foundation for this belief is “the reactions from our customers to recent product previews and presentations”. In this context we need to remember that the company was founded by four people, and those four are still running it.
They are used to talking with customers. Indeed, Jon Dover and other directors will be manning stands at the London Toy Fair this week. The enthusiasm with which Jon described the new products (those already announced and those which are still under wraps) is a sight to behold. He really loves this business and the way in which it is constantly renewed by exciting new toys (one is a giraffe which poos!).
Putting some numbers on it
The update said that despite the anticipated strong finish to the current year (yearend 31 August) Christmas was so poor that profit before tax is expected to be circa £10m (it was £11.1m in 2019). So around £8m after tax for 2020. This is substantially below the expectations of analysts, some of whom attended the meeting and made their displeasure felt (there was about 35 people in the room).
At £8m of earnings, with the market capitalisation at £68m the shares stand on a
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