Tag: Character Group

  • Directors & Shares

    A Fine Line

    Back in September, I published a post on how directors could prove to their investors that they were in it for them – the owners of the company – and not themselves, the temporary custodians. My answer was a rather empthatic one; the easiest way to make a director think like a shareholder is to make him a shareholder. Now he's not just motivated by his salary and bonus, but is incentivised to care about the share price - after all, it now directly affects his own income. Recently, though, that black and white answer has come up against a few questions; the latest of which was brought out by the investor disquiet at Elektron. I had posted a piece on Elektron on Monday - so congratulations to those of you who read it - but it has since disappeared into the ether of the internet. The first lesson for me today, then - back things up more regularly. Since it's a good example, though, I'll start with Elektron as I think about exactly what the implications are behind directors, share ownership, and incentivisation schemes.

    The disquieted

    As I mentioned in the now buried post, probably the best places to point to for the story behind Elektron's recent shareholder anger are the online message boards at ADVFN and iii. Elektron are a company who seem to be recovering operationally, with much improved profits last year. Glancing through the annual reports, I noted that the Chairman had a significant chunk of shares. Theoretically, this strong ownership should give shareholders some faith that the Chairman is in it for the long haul. One quote from the bulletin board stuck in my mind, though: (more…)

  • Twelve for 2012

    Part Two

    With six of my stock choices briefly explained here, I conclude my twelve for 2012 in this post. The format for my last picks is exactly the same as for my first - I want to explain them briefly, simply, and without too much jargon. If you want a more detailed analysis, of course, I did do full posts on all these companies - just use the search bar above right or tags at the bottom to find them!

    Howden Joinery

    Howden Joinery, makers of predominantly kitchens and fittings, have a very low cost business model and growth which is both deceptively recession-proof and surprisingly strong. Due to Howden's approach to selling to the trade instead of consumers, stores tend to 'mature' over time as they increase in account holders - something which is still driving growth even before store expansion. On top of that, though, Howden is continuing to pursue growth in the vein of its existing model - cutting out the expensive high street stores customer-facing sellers need, and allowing themselves to focus on margins, which continue to be very strong. French expansion is on hold at the minute due to the uncertainty, but the business seems solidly run and consistently profitable since their troubled beginning.

    Cranswick

    Cranswick make sausages and meat products, and were memorably described in one of my very early blog posts thus:"This seems like a Buffettesque company. I think the company will slowly accrete value." That's a description I probably agree with as, through various cycles of pork selling prices, Cranswick has continuously grown and remained profitable. In fact, they've grown revenue year on year for the last 10 years, and almost grown profit consistently for that same period. The balance sheet is extremely conservative, the management seem the same, and so the question always came down to valuation; and at a P/E of below 11 an extremely safe, consistent grower whose margins had been slightly squeezed seemed a solid bet. (more…)

  • Character Group (CCT)

    Steadying the ship

    Character Group are one of my portfolio's picks that's holding up better. They're up about 6% after fees and spread since my initial purchase, which is heartening given the state of the general market in that time, though on an earnings basis they still appear very cheap - trading on a historic P/E of just 6.4 and a forward P/E largely the same. Some of the problem, I suspect, is highlighted in the graph. Sure, they had a strong year last year, and are forecast a good one next year - but how much faith can we have in a continuation of that trend given 2 huge swings in the last 6 years?

    To justify an investment, then, we have to qualify why the downswings occurred, how likely they are to happen again, and whether the price they're trading at justifies the risk we've quantified. Obviously, that's a lot of touchy-feely factors - it's difficult for me to pluck a number out of the air and decide there's a 23.4% risk of a sizable downswing in 4 years time - but that shouldn't be a reason not to attempt it. The world of finance is difficult, and the same difficulties are faced by all market participants. We're just looking to apply a solid set of principles and a little common sense to find shares that the market might be pricing incorrectly at this point in time.

    With the introduction aside, then, we move on to the business itself. Character Group have a trait in common with a lot of the businesses I like - what they do is fairly simple. They design, produce, and sell toys - a growing number of which with well-known 'names' attached to them, such as Doctor Who and Peppa Pig. In this sense, they provide a route for monetising those intangible assets (brand names) that other firms hold, which makes it an attractive proposition for them; and Character hardly do badly out of it either, with a 34% gross margin most recently reported. The toys are largely produced in China to keep costs down, almost a prerequisite in this day and age, and sold both in the UK and internationally - around 18% of group sales come from outside the UK. (more…)