SIF August review: Character Group torpedoed by Peppa bid + Anglo Pacific, Total

Tuesday, Aug 27 2019 by
12
SIF August review Character Group torpedoed by Peppa bid  Anglo Pacific Total

One of the hazards of small cap investing is that smaller companies are often more at risk of disruption from single events than larger businesses. 

We saw this on Friday when the Character Group share price closed down by 19%. The trigger for this slide appears to have been a £3.3bn bid from US toy giant Hasbro for Peppa Pig brand owner Entertainment One.

I’ll explain why this could be bad news for Character Group later in this report. 

As it happens, I was due to take a look at Character anyway this week. It’s the end of the month, which means that companies that have been in SIF for at least nine months are due for review and possible sale. On the list this week are three firms:

  • Character Group (LON:CCT) - should Character stay in the SIF folio? I’ll explain each side of the argument and take a look at the numbers.

  • Anglo Pacific (LON:APF) - this mining royalty group has impressed me although I remain concerned by its dependency on one key asset. After a strong set of H1 figures last week, does it still pass my screening tests?

  • Total SA (LON:TTA) - my bet on French oil and gas giant Total hasn’t paid off (yet). But does this firm still qualify as a hold?

Here’s how these three firms have performed so far during their time in the portfolio:

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As you can see, Friday’s fall has wiped out what would have been a modest profit on the Character position. 

Let’s take a closer look at each company.

Character Group (LON:CCT)

(Original coverage 13/11/2018)

Entertainment One is the owner of the Peppa Pig brand. For the last fifteen years, Character Group has held the exclusive licence to produce Peppa Pig toys. As you’ll know if you’ve watched children’s television in the last decade, Peppa is massive. Character’s toy ranges have performed very well. 

I suspect it’s fair to say that Peppa has given this toy firm a greater scale, profitability and credibility than it might otherwise have enjoyed.

Until Friday, the market had not seriously considered the risk that Character could lose the Peppa contract. After such a long run of good performance, licence renewals had become a foregone conclusion.

But…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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The Character Group plc is a toy company. The Company is engaged in the design, development and international distribution of toys, games and gifts. Its geographical segments include other EU, UK and Far East. It designs and manufactures toys based on television, film and digital characters, and distributes these products in the United Kingdom and overseas. It also distributes finished products in the United Kingdom developed by overseas-based toy producers. Its diverse product range includes products for pre-school, boys, activity and girls. The Company's brands include Peppa Pig, Little Live Pets, Teletubbies, Minecraft, Scooby Doo, Mashems, Fireman Sam and Ben & Holly. Its customer list includes the United Kingdom toy retailers, the United Kingdom independent toy stores and a selection of overseas distributors. It operates approximately two distribution warehouses located near Oldham, Greater Manchester. It primarily distributes products sourced from overseas third parties. more »

LSE Price
375p
Change
-0.8%
Mkt Cap (£m)
80.8
P/E (fwd)
7.6
Yield (fwd)
7.4

Anglo Pacific Group PLC (Anglo Pacific) is a United Kingdom-based company, which focuses on royalties connected with the mining of natural resources. The Company's producing royalties include Kestrel, Narrabri, Maracas Menchen, El Valle- Boinas/Carles (EVBC) and Four Mile. The Company's development royalties include Salamanca, Groundhog, and Amapa & Tucano. The Company's early-stage royalties include Pilbara, Ring of Fire and Dugbe 1. Kestrel is an underground coal mine located in the Bowen Basin, Queensland, Australia. The Company holds interests in the Narrabri coal project, which is located in New South Wales, Australia. The Narrabri royalty includes the Narrabri mine, and the Narrabri South project. The Maracas Menchen project is located in approximately 250 kilometers south-west of the city of Salvador, the capital of Bahia State, Brazil. EVBC is located in the Rio Narcea Gold Belt of northern Spain. The Salamanca uranium project is located in Spain. more »

LSE Price
198.65p
Change
0.1%
Mkt Cap (£m)
360.2
P/E (fwd)
9.1
Yield (fwd)
4.4



  Is LON:CCT fundamentally strong or weak? Find out More »


3 Comments on this Article show/hide all

JohnEustace 27th Aug 1 of 3

I thought £CCT might have put out some sort of statement by now. Makes me wonder if there are discussions of some sort underway. Perhaps Hasbro would prefer not to wait to get their hands on the Peppa Pig rights.

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brileen 27th Aug 2 of 3
1

Hi Roland

Just a note of thanks as I followed you into this share and subsequently sold at almost the top of the market a couple of months ago when your comments again brought it to my attention.  A very successful trade. 

Regards

BB

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Phil117 28th Aug 3 of 3
2

In reply to post #507906

One thing to note is that £CCT's financial year end is August and they have previously put out a Trading Update mid-September. I also thought they would want to put out a press release ASAP following the drop. But on reflection I wonder whether they are waiting until post year-end. Based on the interims I suspect trading has been strong. Hence they may well think it makes sense to present the "upside" case in the context of the recent results. And in any case commentary is complicated by the fact that as has been pointed out, 1. There may well be a successful counter bid (as of writing SP continues to trade above the bid price) and 2. As you pointed there may well be behind the scenes negotiations with Hasbro, which may well include everything up to and including a take out of Character (LON:CCT) by Hasbro. I know the latter is extremely far fetched given that Hasbro can presumably just move production in house. On the other hand £CCT's Enterprise Value would be pocket change for Hasbro in the context of the other deal and its own market cap. All that being said I remain a cautious holder. Character (LON:CCT) has exceptional ROCE, a decent dividend yield (6.5% forecast), a bombed out P/E, is net cash positive, and has strong cash conversion (capex is not big). Management gave a competent impression at Mello. Even assuming a worst case of a total Peppa loss in 2 year's time would still leave the share good value at these levels. All IMHO.

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About Roland Head

Roland Head

I'm a private investor, analyst and writer on stock markets, with a particular fondness for free cash flow, dividends and value. My main interests are UK and US stocks. I also have an interest in (profitable) commodity stocks.  I have passed the CFA Level 1 exam and hold the CFA UK Investment Management Certificate (IMC). One of my investment interests is developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. In earlier life, I worked as an engineer in telecoms and IT. The rules-based and quantitative approach required for this kind of work undoubtedly influenced my investing style.  I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a very large and now defunct Canadian telecoms firm.  more »

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