12 Stocks of Christmas: Character

Character (LON:CCT) - A solid performer even in a tough economy

• Market cap at the time of writing: £51m, at a share price of 274p.

I’m giving this share an honourable mention as I strongly considered it for my 2025 watchlist, although it eventually didn’t make the cut as I preferred to leave most of the incumbents in play.

Character is a share that has been publicly listed for nearly 30 years and often comes across the radar of small-cap watchers as a share that trades at a modest multiple and generates attractive quality metrics such as high ROE and high ROCE.

However, the last ten years has seen the share price ultimately wind up back where it started, with the main volatility being seen in the 2020-2021 period:

I recently covered it in the daily report, when annual results were published in line with expectations.

Character is an importer and distributor of toys and games that it has designed and then subcontracted out to Chinese manufacturers. It generally does not own any of the IP in terms of the brands used on its toys, but it fosters good relationships with brand owners and tends to operate under the same licences for many years.

So while the company does not own the valuable IP that it uses, it can still generate high ROE and ROCE as it doesn’t have any capital-intensive manufacturing facilities on its balance sheet.

Recent annual results showed a very flat revenue performance in FY August 2024. Revenues inched up by less than £1m to £123.4m. Despite this, and a “harsh” trading environment given the cost of living crisis and weak consumer confidence in the UK, Character managed to grind out a nice increase in both adjusted (£6.6m) and statutory (£5.7m) pre-tax profits.

Character’s accounts are clean and simple, which is something I look for in small-caps and micro-caps: if a business is simple and small, then its accounts should reflect that!

Another nice feature of the company (in my personal opinion) is its propensity to buy back shares. A £2m buyback is ongoing and at the next AGM they will seek permission to buy back another 15% of the company’s outstanding shares. This is not instead of but in addition to dividend payments:

Management have been with the company for many years and includes the following individuals:

• K Shah, co-founded the business in early 1991, joint MD and owns 1.9 million shares (10% of the company).

• J. Diver, joint MD, joined the business in 1991 and owns 1.3 million shares (nearly 7%).

• J Kissane, co-founder, MD of the principal subsidiary, owns 0.5 million shares (2%).

• J Healy, Marketing Director, joined in 2004.

Hopefully this information helps to convey that this is not some fly-by-night organisation: Character has been doing what it does for decades and management are well-invested in the outcome for shareholders.

With the company enjoying a net cash position of £13m as of the most recent year-end (prior to the latest share buyback) and trading at a moderate earnings multiple, I’m positive on this one and looking forward to seeing how it might perform when the consumer is more confident than it has been in recent times.