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Here’s why the Funtastic (ASX:FUN) share price is sinking today

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The Funtastic Limited (ASX: FUN) share price is falling today after the company announced the sale of its confectionery business.

At the time of writing, the Funtastic share price is down 7.6% to 12 cents.

What’s lowering the Funtastic share price?

The Funtastic share price is dropping lower after investors took note of the company’s change in strategic direction.

In today’s release, Funtastic advised it is seeking to bring new products to market, expand e-commerce operations, and explore growth opportunities.

Based on management’s decision to overhaul the company’s existing portfolio, the company has sold off its confectionery business to Sweet Season Pty Ltd.

This follows its recent acquisition of Hobby Warehouse Group, which includes e-commerce businesses Hobby Warehouse, Toys’R’Us and Babies’R’Us.

The agreed sale of its candy business along with current inventory, went for the price of $1.05 million.

The company said that at the end of July 2020, the confectionery business recorded $4.2 million in revenue for the entire financial year. This accounted for 17.1% of total group revenue before the acquisition of Hobby Warehouse Group.

Net assets from the confectionery business amounted to $195,000 at the end of the same period. This represented just 4% of the total assets held by Funtastic.

What did management say?

Commenting on the divestment, Funtastic CEO and managing director Louis Mittoni said:

The sale of the confectionery business is part of the ongoing strategic review of all product ranges, customer segments and operations.

It accelerates materialisation of value for part of the business and will allow investment to build scale and to right-size the business, aligned with the planned growth and focus of the company to deliver our mission of encouraging children to engage with as many forms of play as possible and assist people to explore, create and live life more fully.

Funtastic share price snapshot

Over the past 12 months, the Funtastic share price has zoomed higher, reflecting gains of more than 470%.

The company’s shares took a dive during the March COVID-19 meltdown and were priced at just 0.7 cents per share. However, trading conditions improved, which saw its shares reach a 52-week high of 19.5 cents in October.

Based on the current share price, Funtastic commands a market capitalisation of around $101 million.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Aaron Teboneras