[Nick Hargrave]

Per our note on 29-Jul we are now publishing our next thesis for proactive engagement – Character Group plc. The thesis is now available in the new engagement Theses section.

The company has a relatively simple business model designing and distributing pre-school and early years toys. Apart from occasional years the company appears able to consistently generate £11m EBIT annually after management payments that we believe are excessive. With management comfortably receiving a large portion of the company’s cash we don’t believe the business is being optimised or ‘pushed’ to deliver.

We have contacted the Joint MDs directly to discuss the business but have received no response as yet. We have also contacted Henry Spain Investments to discuss their views on the business as they continue to accumulate shares. Recognising it is August, we have not yet received a response but will continue to try.

Historically we would not have published an engagement thesis until we had gathered this insight but the aim of MHM is to drive and benefit from collective engagement and we believe that members will benefit from being able to follow and engage in the process from this early stage. We also hope that members will contribute their insights into the business and highlight any connections they have with the company, Henry Spain Investments, other CCT shareholders, potential new independent directors and potential new management candidates.

This will obviously not be an ‘overnight’ process from this very early stage but we believe that significant shareholder value is being both left on the table from a sub-optimally run business and excessive value taken off the table through poor remuneration structures and an executive friendly board.

Topic

[Nick Hargrave]

I have been surprised by the almost complete lack of concern amongst shareholders about the management and governance of the business. The board and management have ignored all requests for a discussion on the business, the major shareholders are unconcerned about remuneration levels and governance red flags, and the wider shareholder base appears entirely inactive despite efforts to engage. Given the shareholder base and apparent wide shareholder apathy towards the company, there seems little value in pursuing change at a company where shareholders have no apparent appetite for such change. Given the the very real concerns we have over governance, the small model portfolio position will be released in favour of our numerous compelling ideas

[Nick Hargrave]

http://www.thecharacter.com/media/1ipfifzk/tri-the-character-group-plc-rowan-22-9-23.pdf

Rowan Dartington have disclosed a 5% position. A wealth manager similar to Henry Spain and we will endeavour to contact them to discuss their views on the company

[Nick Hargrave]

I have now spoken with Henry Spain Investment Services and while confidentiality precludes me from a detailed commentary I think that a fair summary is that they are supportive of the management team who they believe act with integrity. I would not, therefore, expect them to actively support any public, proactive engagement. We continue to push for a meeting with management to assess them ourselves and discuss our concerns to allow us to establish whether further engagement is warranted and in what form, or whether the company more simply represents a value opportunity

[Nick Hargrave]

I have successfully connected with Tom Spain at Henry Spain Investment Services and we are aiming to speak soon. While he is not able to discuss individual portfolio companies it will be an opportunity to understand their investment philosophy. In the meantime, they produced a short video interview with the joint MDs of CCT (found at the link below) that provides some insight to management

Character Group Insights Q2 – 2023

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