Small Cap Value Report (5 Jun 2015) - CCT, SCS

5th Jun '15 by Paul Scott

11 comments 17231 reads

Good morning!

Being Friday, it's quiet for news, especially so today, with very little of interest in my section of the market. That's useful, as I'm busy in meetings all afternoon. So I won't have time to do a YouTube video today, sorry about that - also no point, when there's no material.

Character (LON:CCT)

Share price: 435p
No. shares: 20.8m
Market Cap: £90.5m

(at the time of writing, I hold a long position in this share)

Director sale - I thought that yesterday's price weakness in this share was just a bit of profit-taking. However, it's more likely a bit of flipping (for an instant profit) from people who bought some stock from the Chairman in a secondary placing.

This is nothing to worry about, as the Chairman has had the stated aim of selling down his shareholding gradually for some time, and is doing so in an orderly fashion.

My opinion - it's pleasing to see that there was demand for 7.36% of the company, With this overhang now pretty much cleared, I am hopeful that the shares might make new highs - IF the newsflow continues to be strong.

The valuation looks reasonable still, and note that this is one of the top ranked Stockopedia shares, with a StockRank of 98.

Director Remuneration - some readers have crticised the company for excessive management bonuses, and I think that's a perfectly valid criticism. Here is the Director remuneration table from the last Annual Report, where you can see that Director pay was pretty bonkers for what is still a smallish company (although note that they didn't get any bonuses the year before);

From my point of view, do I really want to cut off my nose, to spite my face? No. The shares have been a terrific investment in the last 8 or 9 months since I flagged it here (several times), and bought some myself. Therefore I can live with the Directors having a bit of a feeding frenzy too, even though bonuses of this size seem excessive.

A cap of about 50% of salary should I think become best practice for performance bonuses. Anything above that is rewarding people excessively for just doing their job, in my view. Often overly generous bonus schemes incentivise management to make bad…

Unlock with Email

Unlock with Google

Already have an account?
Login here

danyou

5th Jun '15

Paul, Re CCT, I am fairly sure that a glowing rec from Simon Thompson played its part on both his Monday report which caused a 10% jump the next day as well as being published in today's IC....

Paul Scott

Hi danyou,

Indeed it did. I mentioned Simon Thompson's article on Character (LON:CCT) in my video on Monday this week.
It's always tempting to top-slice when he tips something I hold, as the spikes can often be short-lived, but I decided not to top slice CCT, as I think the shares still look good value, and there could be more upside from new product ranges.

The main risk with CCT is that the end customers (kids) are fickle, so their products could go out of fashion. Although they seem to have a good bedrock now of core products which seem to be enduring. Also the Teletubbies are coming back apparently, and CCT are making a range for that.

It's so difficult deciding when to sell, but with CCT I have a feeling in my bones that it has the potential to go a lot higher, IF and only if the trading newsflow continues to be strong.

Regards, Paul.

underscored

As the parent of toddlers I would say that the kids themselves are not fickle. Once they latch on to Peppa pig, they are not letting go! However over the years what it is that the current batch of kids latchs onto changes.

BahrainChris

Hi Paul,

Interesting to hear you say that you (and Bellway) think uncertainty regarding the general election is "utter tosh"!

I'm in the process of trying to buy a house in London at the moment and pretty much every estate agent I've met has said there was a noticeable slow-down in the 2-3 months prior to the election and a dramatic pick-up immediately afterwards.

Chris

London is one of many housing markets in the UK. Bellway is supported by direct government subsidy (HTB1).

kenobi

Still remember the Starwars Episode ! debacle, which destroyed much value and took the company close to folding. It's to the credit of the management that they bougght the company back. However it shows how a few bad deals/licences, and poorly judged toys can effect the company. If the md is happy to sell 2/3 of his shares (£6M) at this price, while earning half a million a year, it's maybe not the best time to buy in risk/reward time.

What do I know though ? I didn't buy in when you flagged it up at 200p or so !

well done to those who traded this, I would be very tempted to topslice myself !!

K

pkarnezis

Hmm... Maybe SCS (LON:SCS) 's slump in the sales of sofas signifies a lack of anything good on telly lately. Which in turn leads the shrewd trader to consider shorting Entertainment One (LON:ETO). I'll ask ShareProphets to get in on the act, pronto.
We're going to be rich I tell you! Rich!

shauniekent

Character looks agreat company - but why is Richard King selling if they have a lot further to run? Director sales bug me where the company looks so attractively an investment.
I want directors to be greedy for shares - if they see potential share price gains they would surely be reluctant sellers indeed?

Ben Hobson

Yeah, I'm with you on that. Peppa Pig, Ben & Holly and now Scooby Doo - I've got young kids and the interest in these things can be counted in years. And these pieces of plastic don't come cheap !

Rusty2

This is company statement: "Richard King, the Company's Executive Chairman that, in furtherance of the programme for an orderly sale of the majority of his interests in shares in the Company announced in the Company's half-yearly report on 30 April 2015,"

OK further to that I have just read the report it says he is nearly 70 and this sale is for his retirement.

Flackwell

A few tweaks are needed to company law, to make remuneration votes by shareholders legally binding

Not sure about that - especially since they now are - no payment can be made outside of the declared policy, with the directors collectively holding responsibility (and a duty to pay back) in the event that this is breeched.

Small Cap Value Report (5 Jun 2015) - CCT, SCS

Character (LON:CCT)

Unlock the rest of this article with a 14 day trial

About the Author

Paul Scott

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...