Character Share Discussion Threads

[dan_the_epic] 25/10/2017 22:37

Still expecting some multiple expansion as investors zone into this being trough earnings ahead of a product slate that is there best ever moving forward

[dan_the_epic] 23/10/2017 09:44

Doesn't look like enough volume, RTJ. Has this been tipped somewhere? Is the question I'd be asking

[runthejoules] 23/10/2017 08:28

Looks like they might have just done so. Damnit should have btfd after all. I'm beginning to think that millionaire @paulypilot knows what he's doing...

[dan_the_epic] 21/10/2017 08:47

It is too tricky, dean. They have regulations on when they can buy. I don't think there is enough liquidity at the moment to be permitted (though previous buy back prices clearly indicate they would be willing to do so)

[deanowls] 21/10/2017 06:05

They need to buy back some of these loose shares.

[dan_the_epic] 20/10/2017 18:38

Good idea this given how popular kids toy channels are on youtube. Looks like its a recent initiative and would really help with marketing

[runthejoules] 17/10/2017 07:49

News from Merlin: 'Announcement of two new Intellectual Property partnerships - 'The Bear Grylls Adventure' attraction and a partnership with Entertainment One to roll out location based entertainment based upon the 'Peppa Pig' brand'

...I'm - ahem - bearish on the prospects of ONE of these ventures.

[h1a3] 16/10/2017 21:33

Also another buy back purchase of 112,000 shares at £4.00 each.

[dan_the_epic] 16/10/2017 20:00

Director adding to his holding today

[simso] 16/10/2017 10:35

Reflecting on the Annoucement last week, along with the revised Broker Views, I still cannot make logical sense of the numbers.
The Statement said that UK was "Trading Well" and indicated "in line" with LY levels from what they can see. Some 75% of the business is UK. The Broker downgrade to total sales to -10% v LY (and profit almost -30% v LY), mathematically implies that International Sales are forecasting at up to -40% down. We know TRU are 8% of Worldwide Sales ...and their mix of UK may be different to their mix of International, but I cannot believe TRU make up anything like 40% of International business, and nor can I believe that sales through TRU will be zero. In summary, it doesnt make sense that TRU can have done this much damage, or anything like it.

I also struggle to make sense of the fact that Second Half 17 profit (implied c£6.5m)...some 50% better than any second half in their history, and following a weak first half which was down on LY. I think it extremely rare for a business to move form a poor period of trade (1h17), to a brilliant one (2H17) and now to very poor forecast (1H18), which will recover in H218!. That all doesnt really make sense either.

[dan_the_epic] 15/10/2017 09:17

I very much assumed that something like this is what CCT has hinted at when they said it had affected trade with TRU in pretty much all geographies.

Ironically I don't see TRU going bust. I reckon they'll sort out some clever debt restructuring with their lenders as the cash flows TRU produces is actually really good. Just they've been levered up by private equity and have little wriggle room. If that really is the case, then they will be very aware of the negative impact this restructuring is having and certainly would not want to hit their supply chain. What they end up doing about it is another question I'm keen to watch!

That Telegraph article still says that TRU expect to open 4 new stores this year. It also says "Toys R Us is continuing to operate in bankruptcy protection due to a $3bn financing facility, which is meant to guarantee suppliers they will be paid in full for their Christmas stock."

[dan_the_epic] 13/10/2017 20:21

Some sizeable trades bouncing around

Tipped as a recovery buy on Shareprophets btw

[martinthebrave] 12/10/2017 11:35

Tend to agree Dan. Suspect we will be back to the pre RNS share price of 445p PDQ.

[dan_the_epic] 11/10/2017 20:44

They've effectively had 30% cut off next years EPS on the back of the last 2 recent trading updates. That's a pretty damn hefty cut. Not sure there is actually much more to kitchen sink!

I'll give a call into them tomorrow and see what they're saying

[topvest] 11/10/2017 20:41

Out of experience Character throw a bad year every 5 years or so. Its that kind of business. Will look to enter if they have a poor Christmas as the following year looks positive. Back on the watch list.

[dan_the_epic] 11/10/2017 19:55

Allenby have cut EPS for 2018 to 41.3p FWIW, which looks pretty fair. The impact of Toys r Us looks pretty real but hopefully this is an exceptional hit which we'll look back on in 6-12 months and see retrospectively as having been a great buying opp

[martinthebrave] 11/10/2017 19:22

Pauly Pilot view of CCT today. He is remaining a holder and may add.

Character (LON:CCT)

Share price: 357p (down 19.8% today)
No. shares: 21.1m
Market cap: £75.3m

(at the time of writing, I hold a long position in this share)

Trading update (profit warning) - I'm quite surprised that the market has reacted so negatively this morning to the latest update. The company had already told us here on 19 Sep 2017 that market conditions were challenging, and that a major customer (c.8% of total sales, estimated by one broker) Toys R Us, had filed for bankruptcy protection in USA & Canada.

Results for y/e 08/2017 - the company had already reported that results would be in line with expectations. This is reiterated today, as follows;

As reported in September, the business has had a solid finish to the 2017 financial year. Accordingly, the Directors anticipate that, Group underlying pre-tax profits for the year ended 31 August 2017 are projected to meet current market estimates. The Group's balance sheet remains strong.

To put a figure on that, the forecasts I've seen are around 51-52p EPS - so at this morning's lower share price, the (how historic) PER is just 6.9.

As we know, the market looks into the future, not backwards.

Results for y/e 08/2018 - this is what has spooked the market today - somewhat surprising, given that the company had already warned previously about the issues it was facing, but there we go;

UK sales are OK. The issue is with international;

Our international and "FOB" sales have been adversely effected by a combination of several factors, not least of which is one of the world's largest toy retailers entering into Chapter 11 bankruptcy protection in the US and Canada, which has had subsequent knock-on repercussions in every market where it trades (including the UK). Our international customers are also taking a very conservative approach to purchases.

At this early stage of the Group's new financial year the Board consider that, based on the latest sales and market data available to them, the Group's performance for the year ending 31 August 2018 is now expected to be significantly below current market estimates.

Broker forecasts - so far I've only seen one broker note this morning. Panmures have revised down their forecasts, in a new note this morning, which is available on Research Tree.

Based on the new EPS forecasts of 38.1p 08/2018, and 45.3p 08/2019, then the forward PER is 9.4 and 7.9 - which looks good value - providing that this is the full extent of the damage. Bear in mind that the net cash is now 25% of the entire market cap, and the PER would be a lot lower still if you adjusted out the net cash.

Also note that forecast dividends are 21p and 25p. At the current share price of 357p, that would produce divi yields of 5.9% and 7.0% - a very attractive return. Those forecast divis are still well covered by the reduced earnings forecasts. Note that Character has a strong balance sheet, with net cash, which further reinforces my confidence in the projected divis.

Today's comments on divis are reassuring;

Furthermore, we are committed to maintaining our progressive dividend policy and continuing our share buy-back programme, as and when considered appropriate.

Note that the company's website shows 24.2m shares in issue, but about 3.3m of those are held in treasury. Stockopedia shows a net figure of 21.1m shares in issue, which is in the same ballpark.

Outlook comments sound upbeat;

Nevertheless, the Directors believe this to be a temporary downturn and that the Group anticipates returning to its previous growth pattern during the second half of the 2018 calendar year, and this ultimately is expected to be reflected in the financial performance for the year ending 31 August 2019.

The single biggest factor underpinning our optimism is that during 2018 we shall be introducing exceptionally exciting new products, many developed in-house which, together with the current product portfolio will, the Directors believe, give the Group its strongest ever product line up.

Additionally, even in these tough trading conditions, we expect our cash flow to remain positive, our reserves to grow, and our Christmas stocks to remain under control.

So this seems to be a situation where investors who look through the current difficulties, and accept that they are temporary, could end up with a nice buying opportunity. The risk is obviously that problems get worse, and another profit warning has to be issued.

Balance sheet - I thought it would be useful to refresh my memory on the most recently reported balance sheet. It looks excellent, here are a few key measures as at 28 Feb 2017;

Net Asset Value (NAV): £25.2m

Net Tangible Asset Value (NTAV): £24.5m (there is only £729k of intangible assets to be deducted)

Current Ratio: 2.27 - very strong, and this includes net cash of £18.6m - that's almost 25% of the entire company's market cap.

Overall then, this is a really strong balance sheet with plenty of surplus working capital. So there should not be any issues over solvency, even if trading deteriorates a lot more.

My opinion - based on the information provided in Sept 2017, and more recently today, I see this as a good buying opportunity. So I've currently got a buy order in, to increase my existing position size. My main worry is that the price could fall further - my broker reckons that sellers have not finished yet. It's usually a mistake to buy on the day of a profit warning. However, when the price is falling, then you have better liquidity - so it's often the only time you can actually buy a stock like this in decent size.

I've no idea what the exact low point will be in the share price, and don't really care particularly - because the price now looks sufficiently cheap on (revised) earnings forecasts, and with a very attractive yield, that it's cheap enough for me. I accept the risk that there could be another profit warning - that risk is why the share is now so cheap.

The key points for me are that the main reason for the profit warning seems to be a one-off factor outside their control - the insolvency of Toys R Us. Also, the new products in the pipeline give good grounds for optimism in H2 of 2018 and into 2019. Therefore I see this as being a possibly bumpy ride, but where I should be paid nice divis, and see a decent capital return in say 1-2 years.

It should be said that I generally tend to be a bit too willing to give companies the benefit of the doubt! Also note that the stock market has never really attributed a generous valuation to this company - it always looks cheap.

As always, please remember that I'm only giving a personal opinion, and reporting what I'm personally doing with my portfolio. I might possibly add some to BMUS, but haven't decided yet. The onus is on readers to do your own research, and take responsibility for your own trades. Hence why I never give recommendations. If something in your portfolio goes wrong, you're to blame, not me! That's why I never give recommendations - because I don't want the responsibility or hassle of people blaming me for stock ideas that go wrong, as inevitably many will.

I'm particularly keen to hear from anyone who's bearish on CCT - it's vitally important to consider the negative case on a share. Obviously I reserve the right to change my mind at any time, on any share.

[mcartdon] 11/10/2017 18:58

the international sales will obviously drop from 25% perhaps halve from what we can tell. profit margins will fall as dollar earnings were good.
they may throw in the kitchen sink and have a down year with a bounce back in 2019.
however who knows dissapointing.
its the uk christmas and year ahead thats key. as to weather 350-450 is the range.
we have a 15 month wait for a strong recovery which is very likely to 6-8 pounds if we dont have a recession ahead.
25% cash will keep the divi growing and less shares in circulation. and perhaps a bu bid at some point though its got to be unlikely.

[h1a3] 11/10/2017 18:21

I hope the buy backs today totalling 120,000 shares is positive action by the BOD and not a cynical one to support the price. I have been invested all through the ups and downs on CCT and so the present trading update has not really surprised me, albeit I now wished that I had reduced my holding when the price hit £5.00. Hindsight is golden as they say.
Moving on, I am little concerned that Fido thinks that the price may well go to sub £3.00 in the months ahead. Martinthebrave has made some very good points and cash on the BS is of comfort. I am now wondering whether to bail out and hopefully buy back at a lower price or just stick with my holding and ride out the storm.

[fido] 11/10/2017 17:34

martinthebrave,
I have seen many ups and downs with this company but held through all of them believing that International growth would be the making of the company. Once it became clear that Character was not able to create the same success internationally as it had done in the UK I decided that I was not prepared to suffer the consequences of that on the share price and sold out. I believe that Character will always do well in the UK but the lack of International growth was the clincher for me.
Good luck to everyone.

[martinthebrave] 11/10/2017 15:11

fido

Ok. Thanks for the context.

[tratante] 11/10/2017 14:46

They are buying back shares at least.

[fido] 11/10/2017 14:34

martinthebrave,

PS. The bulk of my shares were bought at 20p per share when everyone on this board was slagging the company off big time. That alone shows you how long I had been invested.
I had previously bought shares in the IPO at 75p when it was called Toy Options.