Shares in toys maker Character Group PLC (LON:CCT) were off 11.5% after what its nominated adviser (nomad), Panmure Gordon, called “another encouraging update”.
Panmure's Peter Smedley preferred to focus on the reassurance from Character's management that consensus expectations for the current financial year (FY17) remain firmly intact.
“We particularly note management commentary that the 'cash position continues to strengthen considerably', further adding to the £6.9mln of net cash at FY16,” said Smedley, going in to bat for his client.
“This reminds us of one of CCT’s key investment attractions: the highly attractive financial model with low capital intensity provides the capacity for significant cash generation as profits continue to grow, in turn supporting a progressive dividend policy and the continuation of the multi-year share buyback programme,” Smedley said.
The broker said there was no significant new information in today's update, which was released ahead of the company's annual general meeting (AGM).
Character, best known for its Peppa Pig character, said trading in the four months to the end of December had been marginally below the same period of 2015, which Panmure thinks indicates a low single digit percentage sales decline.
The nomad is expecting revenue growth of 4% year-on-year for the whole of FY17, so sales have some catching up to do.
“We are confident, however, in the board’s view that 'market expectations for the 2017 financial year shall be achieved' based on the combination of: (1) management’s positive outlook statement; (2) the continued performance of the cornerstone brands in the UK and, increasingly, internationally; and (3) management’s commentary about the favourable initial reaction of retailer customers to CCT’s 2017 product range,” Smedley said.
Although there is no guarantee that history will repeat itself, Smedley also recalls from last year’s AGM trading update that the first four months' performance also trailed quite meaningfully it full year FY16 sales forecast, “only for CCT to deliver against and, indeed, beat that target”.
So, given the shares have tumbled 60p to 460p this morning, this represents a great buying opportunity in the eyes of Panmure, which has a 635p 12-month price target for the stock.
“Our retail checks suggest that CCT’s main markets, particularly the UK and US, saw good sell-through at the consumer level in the September-December period, with toys being consistently cited as one of the best performing product categories over the Christmas 2016 period,” Panmure revealed.
“We therefore believe that retail inventory of toy products has ended lean after the key Christmas trading period. This positive news, combined with CCT’s low and clean inventory levels, bodes well for CCT for H2FY17 and, indeed, the whole of calendar 2017, in our view,” the broker said.