Peppa Pig and her friends have turned it round for this toy seller.
As David Holding pointed out a couple of weeks ago, shares in Character Group (LSE: CCT) have been bouncing up and down a lot over the past few years, from over £2 in 2007, down to this year's low of 23p, and back to today's price of 67.5p (at the time of writing).
That's partly because of the cyclical nature of toy fashions -- no one manufacturer is going to be able to collar the biggest fads very year, and big sellers like Dr Who don't come round that often. But it's also partly because of hardship that the economic downturn inflicted on the company, as Character lost one of its biggest customers in the demise of Woolworths, and plunged to a big half-year loss back in April.
A nice turnaround
Investors will have been awaiting Character's full-year results, which were announced on Tuesday, with some anticipation, and it looks like there has been some success in turning the business around. Though the company recorded a full-year loss, as expected, it did return to profitability in the second half.
Total revenue fell by 16%, to £69m, for the full year, resulting in a £2.15m operating loss (including an exceptional loss due to the Woollies failure). The bottom line showed a £2.17m pre-tax loss, (against a pre-tax profit of £5.3m in 2008) and a loss per share of 4.1p.
But that's a lot better than things were looking at the halfway stage, when Character posted an operating loss of £3.7m, meaning that the second half has actually produced an operating profit of £1.6m. And to reflect that turnaround, the management has decided to pay a final dividend of 1p per share.
But is that impressive performance going to be enough?
Go Go Dr Peppa
While Character's robotic hamsters, known as Go Go Pets, are tipped to be the hottest thing this Christmas, and the company also has the rights to Dr Who toys, Peppa Pig, and Postman Pat, it seems that we're heading for a festive season of shortages.
The company reports that many retailers, presumably concerned about being left with unsaleable excess stock after Christmas and really not having the spare cash to take such risks this year, have so far under-ordered badly, and are now desperately trying to fill their shelves.
But with Character's own stocks of many items being depleted, and there being lead times of several months on new production orders from the Far East, it seems certain that a lot of kids aren't going to be able to get their hands on the leading must-have pointless tat this year, and so Character Group's festive revenues are going to be smaller than they could have been.
But the firm reckons that more than 600,000 of their robotic rodents have already made it out of the door, so it won't be a bad Christmas for business.
The future?
Character is expecting the current year to see it back in profit, and it's hard to value the shares until we can see some forecasts (and we're awaiting new ones now). But if the next two reporting periods repeat the second half of this year, we'll be looking at something like a £3.2m operating profit next year, and earnings per share of around 8.5p (the second half earnings came in at approx 4.3p per share), which would suggest a forward P/E of around 8.
That's only a pre-emptive guess at what analysts might expect next year, and we'll really need to see firstly what the forecasts actually come out at, and secondly how the first half performs.
But for investors specializing in cyclical businesses, now might prove to be a good (if risky) time to pick up some shares -- though I really couldn't see a company like Character Group, which relies on ever-changing fads and fashions, making it into many long-term buy and hold portfolios.
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