Toymaker Funtastic posts profit boost

Toy wholesaler and distributor Funtastic (ASX: FUN) posted a net profit of $14 million for financial year 2013. That’s up 34% on the prior year and a decent result amidst a retail environment that’s not child’s play. The group distributes children’s toys, confectionary and sporting products — well-known brands include Cabbage Patch Kids, Power Rangers and Pillow Pets.

Weak discretionary spending in Australia resulted in a disappointing year at home. Australia is the group’s core market, with the domestic business contributing over half of total revenues of $166.5 million, down slightly from last year’s $170.7 million.

The strategy to develop markets abroad appears to be paying dividends though. International sales rocketed 73%, acting as the company’s growth engine throughout the year.  Funtastic aims to evolve its core capabilities to include distribution and manufacturing. Hong Kong and China are being developed as manufacturing centres of the future.

The group carries substantial net debt levels, and has undertaken a series of capital raisings in recent times. In July $14.6 million was raised from investors. This helped fund the acquisition of homemade drinks business Chill Factor, which has proved a success with over 2.4 million units sold since launching in May 2013. It’s Funtastic’s fastest growing brand and a potential long-term plus.

Dividend payments were renewed this financial year, with a final dividend of 0.5 cent per share announced, taking the full year payout to one cent per share. Investors buying at today’s price of 18 cents would be looking at a nice 5.5% yield. Looking forward, the board aims to grow earnings-per-share 10% in 2014. The shares are up 5% in trade today.

Foolish takeaway

A mixed year for Funtastic paints a clouded picture. However, on a current price-to-earnings ratio of seven it certainly represents a value play for investors who believe discretionary consumer spending will pickup, particularly with regard to Australia’s record low interest rates.

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Motley Fool contributor Tom Richardson does not own shares in any of the companies mentioned in this article.

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