Successfully predict the Christmas must-have toy and you could be onto a winner. Will this year’s main craze be robotic hamsters?
Visit a car boot sale and you'll see yesterday's must-have Christmas toys looking slightly sad, a little grubby, and very cheap. We've seen them all down the years, from pong tennis, to Teenage Mutant Hero Turtles, Rubik's Cube, Power Rangers, Teletubbies, WWF wrestlers, Baby Annabel, Cabbage Patch Kids, Transformers and Furbies.
A couple of years ago, Doctor Who toys were all the rage. These were distributed courtesy of Character Group (LSE: CCT) and the shares rocketed from 60p to over £2 in fairly short order, with many Fools on board after extensive discussion on Paulypilot's Pub.
Christmas favourites
This Christmas, it could well be Go Go Pets -- an ever-growing collection of electronic interactive hamsters -- that will prove to be next year's boot sale favourites. These are also supplied by Character who say the toys are " ...cute, cuddly and incredibly playful, but without all the mess and fuss of real pets". Anyway, it seems the nation's kids agree as the company told us last month that the things are selling like hot cakes -- as are "Peppa Pig Princess Palaces" apparently.
If Character really has bagged the winners for this year, the shares could be in for a decent rally. Since the heady days of 2007, though, the shares have suffered like so many others, going as low as 23p earlier this year, before recovering to their current level of 62p, which values the toy specialist at £21.4m.
Tough trade
At the last count, back in April, things weren't going swimmingly well by any means, but Character's net tangible asset value was over £10m, with close to £4m in cash. The company made a first-half operating loss of £3.7m as sales fell 22%, and it scrapped its interim dividend. It had made a £3m profit for the same period the previous year. Performance wasn't helped by Woolworths going into administration, causing a one-off exceptional loss of £1m. Overall sales were also down to £37.8m from £48.6m a year earlier.
Since the interims, there hasn't been much in the way of substantial financial news from the company until we heard that Go Go Hamsters and Peppa Pig Princess Palaces are flying off the shelves, so quite what this will mean for the bottom line has to be an educated guess. The broker forecasts an overall pre-tax loss for the current year to the end of February of £1.2m, which it expects to convert to a pre-tax profit of £1.8m, with earnings per share of 3.21p next year.
Research on the hoof
This places the shares are on a forward price-to-earnings ratio of under 20, although this will be less against enterprise value depending on how much cash Character has been able to preserve. Either way, this certainly doesn't make the company look compelling value by any means. But then brokers' forecasts are fraught with difficulty and it's difficult to predict just how much Go Go mania we'll really see.
Character's Managing Director recently told the Financial Times that sales have been "incredible" and that extra supplies have been air-freighted in from China, and a quick glance at Amazon's bestsellers in toys & games sees the cuddly little hamster robots atop the list -- though sadly there's no place for Peppa Pig or her palace.
Nevertheless, a highly successful Christmas could give Character a big boost, particularly given the strength in its balance sheet. This is one situation, though, where research on the hoof may be the best idea. A visit to a big toy shop or two over the next few weeks and a quiet chat with staff members could well give investors an insight into the likely nature of Character's January trading statement.
