What led to Character Group maintaining its profitability amid Covid-19 lockdown?

Summary

• Character Group Plc had reported a decline of 12.50% in its revenue during H1 FY21.
• The Toy Retailers Association (TRA) had announced that its three products had featured strongly in the most reputed best toys of the year.
• The Company had declared a final dividend of 5.0 pence per share to be paid on 29 January 2021.
• The sales during Q1 FY21 were around 30% greater than the levels achieved during the equivalent period of the prior year.

Character Group Plc (LON:CCT) is the FTSE AIM All-Share listed consumer stock. The Company is the largest independent toy company based out in the UK. Based on its 1-year performance, shares of CCT have generated a return of about 3.16%. Shares of CCT were down by close to 2.47% from the last closing price (as on 30 December 2020, before the market close at 08:30 AM GMT).

Character Group Plc is the FTSE AIM All-Share listed toy company, which is engaged in design, development and distribution of games, toys and giftware. The Company was founded in 1991 and mainly distribute products obtained from oversees parties.

Business Model

The Company has three geographic segments – EU, UK and the Far East. The Company manufactures and develop its products by taking inspiration from popular television, movies and digital characters. The product ranges across various segments like – Pre School, Boys, Girls and Activity.

The Company does not own any factory as most of its manufacturing activities happened in China on a sub-contract basis. The Company has its head office in New Malden, Surrey and its two distribution warehouses are located in Greater Manchester. The key customers include UK-based, and Scandinavian-based toy retailers, a wide range of distributors in overseas markets and independent toy stores. The key brands of the Company are –

• Peppa Pig,
• Goo Jit Zu
• Pokémon
• Little Live Pets
• Shimmer ‘n Sparkle
• Squeakee the Balloon Dog
• Laser Battle Hunters
• PenSilly
• Gotta' Go Flamingo
• Treasure X
• My Baby Tumbles
• Project X
• Tap It

FY20 results (ended 31 August 2020) as reported on 10 December 2020

(Source: Company result)

• The revenue of the Company had reduced by 12.5% to £105.3 million during FY20 ended on 31 August 2020 from £120.4 million achieved in FY19 despite substantial growth of sales in the USA due to the successful launch of Goo Jit Zu.
• The Gross profit was £30.2 million during FY20 compared to £41.6m for the previous year. The gross profit margin for the Group was 27.7% for FY20, while it was 34.5% during FY19.
• Similarly, the operating profit and pre-tax profit had declined to £5.4 million and £5.0 million, respectively during FY20.
• The underlying basic earning per share also dropped to 18.12 pence per share during FY20.
• Regarding its financial position, the Company had net assets of £34.0 million as of 31 August 2020, while it was £34.1 million as of 31 August 2019.
• The Company had a net cash balance of £19.1 million as of 31 August 2020, while it was £6.5 million as of 31 August 2019.
• The Company had reported an inventory of £14.7 million as of 31 August 2020 driven by the prudent management of purchases in anticipation of reduced demand levels in the year.
• The Company had declared a final dividend of 5.0 pence per share to be paid on 29 January 2021, while it was 26.0 pence per share during FY19.

Operational Highlights (as on 10 December 2020)

• The two key products of the Company - Gotta' Go Flamingo and PenSilly were selected as the “hottest toys on sale” in their categories in ITV’s series “How to Spend it Well at Christmas” telecasted last month and hosted by Phillip Schofield.
• The Company had witnessed success with other products including Treasure X , My Baby Tumbles, Project X, Tap It and flipside.

Recent News

On 28 October 2020, the Company updated that Toy Retailers Association (TRA) had announced that its three products had featured strongly in the most reputed best toys of the year wish list. The three selected products featured in the official 12 "Dream Toys" 2020 are –

• Peppa Pig's Shopping Centre Playset
• Laser Battle Hunters
• Pokémon Carry Case Playset

Apart from this, five other character toys were named in most sought after category.

• Squeakee the Balloon Dog
• Gotta' Go Flamingo
• Heroes of Goo Jit Zu
• PenSilly
• Stuff-a-loons

Share Price Performance Analysis of Character Group Plc

(Source: Refinitiv, chart created by Kalkine group)

Shares of Character Group Plc were trading at GBX 414.50 and were down by close to 2.47% against the previous closing price as on 30 December 2020, (before the market close at 08:30 AM GMT). CCT's 52-week High and Low were GBX 440.00 and GBX 179.96, respectively. Character Group Plc had a market capitalization of around £90.86 million.

Business Outlook

The Company had delivered excellent trading performance since the ending of lockdown in July 2020 till the Christmas period. The Company had kickstarted its FY21 on a bright note driven by strong consumer demand and further geographic penetration achieved in the USA. The Company believed that its current portfolio is one of the best they had in the last few years. It has achieved success by maintaining its profitability even during challenging times. The first lockdown imposed in the UK came as a blessing in disguise, and the Company had capitalized during that period by bringing creativity and innovation much required for the toy industry. The current pipeline has an exciting and innovative list of products due for its launch during the New Year.

The Company expects a resilient trading performance during H1 FY21, which was supposed to happen during the second half of FY20. The Company is experiencing a peak trading period till Christmas 2020 despite several operational headwinds caused due to fresh lockdowns imposed by the UK Government. The Company had highlighted that the sales during Q1 FY21 were 30% more than the equivalent period of the prior year.