SIF Folio: Character Group And Drax Compete For Cash

20th Jul '21 by Roland Head

3 comments 2732 reads

As I write this on Monday, the market is having a bit of a wobble. This appears to be due to renewed fears that the Covid-19 pandemic may not be under control after all. Naturally I have no idea how likely any of the possible outcomes are.

What interests me more is that Monday’s losses - if they are not quickly reversed - have cut the price of the two stocks I’m looking at this week.

This week’s featured stock is toy firm Character (LON:CCT), whose shares closed down by around 5% on Monday. I’ll look at Character in a moment, but first I want to consider utility group Drax (LON:DRX).

Back in June, I reviewed Drax in this piece and concluded that if the shares dropped below 400p, then they would pass all of my screening criteria. At that level, I said I’d consider adding Drax to SIF.

We are now there - Drax’s share price is 394p at the time of writing. So I’ll follow through on my comments from last month and will add Drax shares to SIF and my own holdings after this article has been published.

Character Group: reborn?

AIM-listed toy company Character Group has recently appeared in the results of my SIF stock-buying screen. The company owns or produces under licence many popular toy ranges, including Peppa Pig, Fireman Sam, Stretch Armstrong and Goo Jit Zu.

This £145m group is a business that I’ve followed for a number of years. It’s historically offered high returns on capital, strong cash generation and owner management. Three current directors appear on the list of top shareholders:

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Character has already made one previous appearance in SIF in 2018/19, but this was not entirely successful. SIF’s holding was sold at a loss in August 2019 when Character’s share price crashed following the acquisition of Peppa Pig owner Entertainment One by US toy firm Hasbro.

At the time, Peppa was one of Character’s biggest sellers, but it was feared that the deal would see Hasbro take Peppa in house.

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So far at least, this hasn’t happened. Peppa Pig remains a big seller for Character and in January the company said it had extended its current contract for Peppa wooden…

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Jim Wall

20th Jul '21

Character (LON:CCT) - is a stock I own and have owned for some time. the shadow of a potential loss of licensing for Peppa had been hanging over them ever since the e-one acquisition by Hasbro but they are branched out with Goo Jitzu being the biggest hit but also in the wooden Peppa range which gives some hope that all may not be lost with the regular Peppa range. Their wooden exploits have resonated well with other IP owners and they have spawned other deals including a full range of toys for the Youtube hit Morphle which further diversifies their portfolio. The duration of their IP licences has always been the question mark that's held back their PE but there is cause for optimism on both the earnings and duration side. There is also a tender offer in the near future hopefully so still cautiously optimistic over here.

John R Machin

21st Jul '21

Thanks for the article and Jim wall for his comments. The quality and value components are good for Character group. I will be waiting for a short term uptick in the sentiment shown on the share chart before buying. At the moment the short term sentiment is avoid, but this may well change to level out then uptick as insiders and other who know more than us about how well the business is doing start to buy. At this point I'm in.

JohnEustace

I’ve been doing my bit to support Character with recent wooden Peppa Pig toy purchases. As toy prices go they aren’t that bad value.

As for Drax that’s a ticking bomb of an investment to me because the importing of biomass to burn makes no sense at all so it’s a matter of time until the policy support gets removed.

SIF Folio: Character Group and Drax compete for cash

Character Group: reborn?

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Roland Head

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