Character Share Discussion Threads

[robow] 25/8/2017 08:33

from Shares magazine in a feature on smaller companies
Buy CCT at 470p for its resiliance and discounted valuation

[dan_the_epic] 24/8/2017 20:15

Special does increase in likelihood if: A) the results are in line with expectations with a muted outlook and so nothing to drive the price and liquidity higher to enable the buyback to properly take off, B) they can't find anything to buy, whether that be attractive licences (unlikely to be big enough) or another company.

Does look increasingly likely, I would say. Again, that's the beauty of lowly rated companies trading well - there are many possible levers to provide share price upside.

[deanowls] 24/8/2017 14:55

Surely some of that cash has to come as a special. Here's hoping anyhow.

[dan_the_epic] 23/8/2017 20:39

As a separate point, the share buyback is conducted on a pre-arranged basis, and would not be undertaken by someone with knowledge of the accounts.

So it's not a readthrough. That said, my post above says enough about where I think Character is going!

[dan_the_epic] 23/8/2017 20:36

Simso,

You firstly need to look at underlying PBT, so that's the £7.1m for H1, leaving £6.4m for H2.

Secondly I think that the market is completely missing the step change that Character is undergoing. 1H17 was there second best half year ever on my calculations. There is substantial strength in current trading, and those who follow Peppa pig will have noted the Nordic expansion recently which is having v strong growth(through which Top Toy sell under the CCT Master agreement).

Then lastly, to quote Panmure Gordon, who no doubt will have spoken to mgmt...
"Highly confident that our FY17 forecasts will be achieved". And that was only back in late April. If that momentum has continued through to the start of the new year, upgrades for FY18 are on their way IMO.

Honestly think this is now, yet again, one of the most misunderstood and attractive plays on AIM. It's rebased to a level where people are not expecting growth. Organic growth implied by the market here is negligible, and the market is also assuming that Character does nothing with the cash balance.

I think in time, that will be proven wrong. And in the interim, I'll collect a very healthy dividend.

[rcturner2] 23/8/2017 17:56

It is a requirement of their listing that they must notify if the actual figures are more than 10% different from the projected figures.

[simso] 23/8/2017 17:29

Over the last two years, mnore than 2/3rd of the PBT has been generated in the first half...which contains Christmas, and this is a toy business after all! THe Brokers forecast this year is for £13.5m PBT, and having achieved £6.5m in H1 (some £2.2m lower than LY and £2.0m lower than 2 years ago), CCT now needs to achieve £7.0m in the second half, which is £2.6m MORE than LY and £3.3m MORE than 2 years ago.

I have always felt that was a "big ask"...to actually make more profit in second half than was actually achieved in the traditionally stronger first half.

A couple of clues that it may be achieveable are that the FD bought shares at the end of April ...when the first two months of second half trading were known. We are now almost at the end of the financial year, and I was also encouraged last week to see CCT had spent £1m on buying back its own shares...around 1% of the total equity. If a Profit warning was coming and they couldnt get to the Brokers View, they would know by now as the Half is all but over, ...and surely they would have waited and bought back the shares more cheaply....wouldnt they?

[dan_the_epic] 03/8/2017 21:02

Totally agree TM. As you say, time will tell. I reckon consensus here has been lowballed and that there is scope for material outperformance on the earnings front.

[thorpematt] 02/8/2017 23:48

Yes plenty of divi cover i think. Also the continued decline in SII means less gets paid out in total. This has been a consistent fall for several years - many companies have to dilute to glean any growth or reduce debt. Not so CCT who create their own reduction in debt; increase in cash pile; return a good divi AND buy back shares...all at once!

Of course, presently there is a feel that CCT does not have a hugely exciting "next big thing" product in its armoury BUT the quality of the business historically should give investors more confidnece. Usually such quality prevails. Remarkably cheap - good opportunity in my estimation...time will tell of course.

[westcountryboy] 30/7/2017 20:15

Unfair I think to say CCT is historically cash rich and therefore should be earning more interest. They had net debt at end of year for several years until 2015 and modest net cash 2015 and 2016. The major increases in net cash have come in the last two interim statements and look to me to be mainly due to seasonal working capital flows - which have been very positive in H1 last three years but still negative over the FY every year except in 2015. Working capital plus investment spending averages £5m a year over several years, £7m in 2016, so I don't know why you say there's been no investment.

They can currently afford to continue the policy of increasing the dividend by 4p per year which is not too shoddy.

[dan_the_epic] 28/7/2017 18:20

Don't get me wrong, I really do appreciate the discussion, mcartdon. It helps refocus on what is driving the multiple discount.

I think the last 12 months have been a bit of a transition. If they can navigate H2 as I expect them to (i.e. hit market expectations if not beat and then see broker estimates for 18 pushing higher), then the comps for H1 next year are much easier. Time will tell, but still think we'll look back in 12 months time and see this as the base for the next pivot higher.

[mcartdon] 28/7/2017 18:10

hopefully it will rise shortly but been holding breath so long im nearly asphyxiated and going elsewhere.
it should be expanding investing growing and becoming stronger,
they hail foreign expansion then the t/o drops abroad despite the low pound.
the go to toy distributor ? where are the new products?
the number of children are growing so they should expand - if they can choose 1 good product.
the competition unfortunately can and do.
the results shortly should give a big hint, promises or actual results the honeymoon since the management changes is ending.
several big holders , friend of foe ,they must be impatient as am I.

[dan_the_epic] 28/7/2017 16:25

And that is the thesis here; do you believe this is as cyclical as it was through the early 2000s, or do you think there has been a step change in the quality. Of the underlying business.

If you believe there has been a fundamental change over the past 5 years, then this is exceptionally lowly rated - company is clearly still trying to deflect off that past perception of cyclicality

[stoxx67] 28/7/2017 14:48

bloody good point mcartdon

[mcartdon] 28/7/2017 14:40

share price is lower than three years ago on average this year look at 18 years virtually no change in t/o since 1999
99m then operating profit 10.6m cash 9m so what have they been doing for 17 years
why should it change

[dan_the_epic] 28/7/2017 11:16

If you're going to look at the last 4 years, look at the price performance. It's not as if the business has been performing poorly.

[mcartdon] 28/7/2017 10:08

thats an extra million returned to shareholders when they make 4x total dividend as profit~ and do nothing with what they retain over the last 4 years. no interest in the books no investment and no debt to cover in those 4 years. zero return . makes you wonder who has the interest free mortgage from the company or where the money goes in between accounts.

[dan_the_epic] 28/7/2017 07:51

When you have optionality like this, though, the only real risk is the management keep on doing nothing (and I really don't think this management team are low quality). Acquisitions/buybacks/divis would all likely be received favourably.

[rcturner2] 27/7/2017 09:18

They are stepping the dividend up by 2p at each interval so it is being raised 4p a year at the moment. When you net off the cash this is quite a big increase in the dividend over time.

[mcartdon] 27/7/2017 00:27

I would agree but in 20 years, we have had no change 20% profit dividend and no interest in a takeover. the cash balance has been building over 7 years the directors have taken 3/4 of the profits or stored them. what for i fail to see, and am suspicious its an offer at a low price from a connected party with a big interest in the company with secondary rewards for directors

[dan_the_epic] 26/7/2017 21:21

The buybacks are limited by regulations about quantities vs. liquidity. They did some when liquidity allowed (2015), but that has tailed off again. I personally wouldn't say a near 4.5% rebased dividend is a low percentage return, though would agree that I wouldn't buy here if I solely was after a dividend (after accounting for the spread, it's not worth it).

I think growth kickstarts on from here. Look, I totally agree, and in that article admit that holding a large cash balance doesn't look great, but at the same time, I'm not going to penalise them for having a very cash generative model. There are a multitude of things they could do with that cash, and barring some bizarre decision, it's hard to see that it wouldn't enhance the share price.

A special dividend, a la Avesco, wouldn't be a bad idea. This valuation is crazy for the value on offer. Run any basic DCF on this and the intrinsic value here is hugely different to the current price. Reckon the first leg of that was realised in 2015, but expectations and metrics have rebased again and catalysts for a rerating are back in play. Time will tell. In reality, if any suitor did swoop on Character (and I'm definitely not saying that there is one), I'd have thought they'd have to play a pretty hefty premium on this (north of 40%).

[mcartdon] 26/7/2017 21:11

there really have been no buybacks for 5 years now that is a myth the number of shares has remained the same out of treasury, so no gain for ordinary shareholders they have just bought the free shares for directors etc.
the dividend has a low percentage return for the share price,
the cash is wasted where is it deposited (they have no bank income). and they dont borrow much. so they arnt saving on borrowing. they have not deposited it sensibly in euros or dollars? so where is it it funds the cycle of stock but no sign of that growing the buisness

[dan_the_epic] 26/7/2017 15:10

If that is the sole reason why this trades on a prospective forward E ex cash of less than 7x then I am more than happy to keep stocking up here.

Works out closer to 6x with salaries ex'd out