Companies: CCT   

Can Hear'Say revitalise Character Group? There's no justice in the stock market. While one character merchandising group, HIT Entertainment, can do little wrong just now, another - Character Group - sees its shares languishing.

Compare the ratings. Even after a recent setback in the wake of a share placing at 440p, HIT shares (at 332p) trade at over 40 times anticipated earnings for 2002. That is according to brokers' forecasts of £17 million pre-tax against this year's probable £6 million.

By contrast, Character Group is selling for more like six times 2002 earnings. That is based on expectations of £2.5 million following a restructuring.

HIT is riding high for a number of reasons. Bob the Builder proved a big hit in the UK and recently became the highest rated US childrens' TV show. Retailer Sears is setting up special shops selling Bob merchandise in 850 of its stores.

HIT's Peter Orton has used his company's financial strength to buy the US animation house, Lyrick, for £190 million and people keen to pump the stock are repeating rumours that the likes of Disney will bid for it. Orton has been quoted as saying he would not be surprised 'if someone took a pop at us'.

Character, by contrast, has been blotting its copybook. It racked up a loss of nearly £13.8 million last year. Like publisher Dorling Kindersley, it overinvested in Star Wars products following the latest film in the series.

Richard King, who pulls the strings at Character, cited other problems, too, when he reported in December. These included the UK fuel crisis and abysmal weather.

Unhappily, managements that cite acts of God as excuses rarely impress the City. Christmas trading then proved difficult and around the turn of the year Character shares slumped to 22p. In 1999, they had touched 442p.

But with rights to Purple Ronnie, South Park and Chicken Run in the portfolio, Character is more than a one-shot stock. Sales of robot toys and digital cameras distributed by Character are progressing, and the share price has bounced following news of the contract to sell character dolls of the Hear'Say band.

You would have to have been living on Planet Zog in the last month to have missed the success of the Popstars programme and the subsequent rise of its manufactured band, Hear'Say, whose first single sold more than 500,000 copies in its first week - beating all previous records.

Now the character merchandising industry is one where forecasts are notoriously unreliable. Fads come and go with remarkable speed.

But, at the current level, Character Group is capitalised at little more than the £8.9 million profit it recorded in 1999. That is little more than a couple of per cent of the value that the market still ascribes to HIT.

Character's King knows he has something to prove. He is currently working to establish stronger links with the Italian toy company, Giochi Preziosi, whose Enrico Preziosi and Claudio Luti have a strong incentive to see the Character share price up. They paid £1 a share for a 15 per cent stake in Character last year.

Character is one for the brave only - but that £1 target may not be too fanciful over time.