Character Group shares impacted by Toys R Us bankruptcy

Character Group (LON: CCT) has released a trading update notifying shareholders that FY17 has finished in line with expectations, yet wider market conditions remain challenging.

Toys R Us, who account for approx. 8% of CCT's sales, has filed for Chapter 11 bankruptcy protection in the US and Canada to help restructure its debt.

Management commented on how this might affect the Group, saying:

At this early stage, we do not know the extent to which this will impact our trading position with them both in the UK and internationally.  Consequently, we do not currently have reliable visibility on the important 2017 Christmas trading period and its effect on the current financial year ending 31 August 2018.

The news sent Character's shares down 6% in trading this morning.

Panmure released a note today, echoing Management's view it is too early to say how CCT might be impacted:

We believe that the $3bn debtor-in-possession financing afforded to Toys "R" Us on Monday should eliminate collections risk for its toy suppliers. However, we recognise that CCT’s exposure is mainly to Toys “R” Us UK (which is not included in the bankruptcy protection) such that if credit insurance was completely withdrawn, then CCT would likely redirect uninsured Toys “R” Us-bound orders to other toy market retail operators. Such a scenario could potentially have an impact on our unchanged FY18 £14.5m PBT estimate."

The bad news comes after a string of good news announcements recently, including the extension of the Group's licensing for the Teletubbies brand and the distribution of Pokemon in the UK.

The Group will release its Interims to August 2017 in December.

Character Group's share price has ridden the wave of a number of ebbs and flows this year, and currently trades at c. 480p with the drop in today's price. The Group's market cap is £106m and shares trade at a PE ratio of 9x against the industry median of 15x.