Good morning!

I'm feeling bright-eyed and bushy-tailed this morning, so I thought I'd get a head-start and kick off the report.

Character (LON:CCT)

  • Share price: 485p (pre-open)
  • No. of shares: 20.9 million
  • Market cap: £102 million

Character Group adds Pokémon to its portfolio

I like the sound of this.

Character is a toy designer and distributor, which describes itself as "the UK's leading independent toy company".

It manages third-party brands under licence. Typically, this means managing relationships with manufacturers in China and the distribution of product to their end markets. Peppa Pig has been particularly important, though it also picked up Teletubbies in the last couple of years. There is a modest level of diversification among different brands.

Today's announcement improves that diversification by adding Pokémon to the mix, from summer 2018. Character's operating subsidiary will be the master toy distributor in the UK & Ireland, thanks to an agreement with Wicked Toys, the global licensee.

Comments the joint MD:

"We are thrilled to be adding such an iconic and powerhouse property as Pokémon to Character's product line up.  Toys are a major part of the Pokémon brand and bring a tangible dimension to fun for kids.  
"The partnership with Wicked Cool Toys spells exciting times ahead and gives Character a tremendous opportunity to add further breadth and depth to our product range; we cannot wait to get started."

My opinion: Character has had consistently excellent Quality metrics, e.g.:


Despite this, and its strong track record, the market has been reluctant to give it a lofty valuation. The PE ratio is currently less than 9x (based on last night's close).

I had justified this scepticism on the grounds that the customer list is somewhat concentrated, and Character ultimately does not own the intellectual property underpinning the products it sells.

However, I am increasingly of the view that the scepticism is overblown, and that a PE ratio more akin to a normal "quality" company might now be fair. Furthermore, while earnings growth has slowed down here over the past couple of years, perhaps with the help of this latest deal, they might now be due to enjoy their next leg up?

Additional comment from Paul: Thanks Graham. I hold some CCT personally, and have been buying recently (avg…

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