In the last two newsletters we noted that Character Group (LSE:CCT) has an impressive history of earnings and dividends. Today we ask if that is built upon a shaky balance sheet and poor cash flow.
Balance sheet data
£m Feb20 Aug19 Feb 2019 Aug 2018 Aug 2017 Aug 2016
Inventories 10.6 16.4 11.2 10.9 9.0 10.3
Receivables 13.5 35.0 12.7 25.6 25.8 25.1
Cash 19.6 30.0 23.5 34.6 28.8 28.6
Investment property 1.6 1.7 1.7 1.7 1.8 1.8
Freehold land and buildings 2.5E 2.5 2.6E 2.6 2.7 2.8
Current assets plus
saleable non-current assets 47.9 85.7 51.7 75.4 68.1 68.6
Short term borrowings -1.9 -22.2 -3.7 -19.1 -17.2 -21.6
Payables -12.1 -28.8 -14.7 -24.7 -22.7 -25.4
Other liabilities (long & short) -4.7 -3.0 -3.8 -1.9 -3.1 -1.3
Current assets + saleable
N-C assets - liabilities 29.2 31.7 29.5 29.7 25.1 20.3
The market capitalisation of Character is £2.52 x 21.36m shares = £53.8m
For most of the year the company does not need to borrow or, if it does, only a small amount, hence the low borrowing level at the half year end in February 2020 (£1.9m).
But in the months running up to Christmas CCT sends out a great volume of toys to retail customers such as Argos who won’t pay for the goods until their cash flows are high in December/January.
Thus, CCT’s receivables number rises dramatically from around £13m most of the year to £25m - £35m in August, and to more in later months.
This extra burden is financed mostly by factoring (up to £15m) and invoice discounting (up to £20m) for a few weeks, and to a lesser extent by import loans.
Character also has an overdraft facility of £6m available. Interest on the overdraft factoring, invoice discounting and overdraft facilities is only 1.43% plus LIBOR or base rate.
Its Far East subsidiaries also have bank overdraft and trade finance facilities of £17.9m.
The Danish subsidiary, Proxy, has an ongoing recourse factoring facility of up to approximately £6.1 million. The interest charged on this facility is CIBOR 3 month/BOR (the Copenhagen interbank interest rate) plus 4.85% per annum. It also has a subordinated loan of £1.342 million where the interest rate is 12.8% per annum. These facilities are secured by various fixed and floating charges over the assets and undertakings of a Danish subsidiary and its subsidiaries.
So long as the retailers pay up in the winter, Character can get………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
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