Snoopy lures funds into branding firm
Mutual funds have been actively buying shares in Iconix, a company which owns most of the rights to the upcoming Peanuts film characters
Fund managers are making a big bet on Snoopy, Lucy and Charlie Brown.
With a big-budget Peanuts film set to appear in cinemas next year, an unusually high number of US mutual funds have been buying shares of Iconix Brand Group, the little-known company that owns 80 per cent of the rights to the characters.
The number of new funds owning shares swelled 36 per cent last quarter, according to data from fund tracker Morningstar. That is a high number for a company with a market value of US$1.9 billion and a slowing core business, fund experts say.
Few consumers have ever heard of the firm, although they are likely familiar with its roster of 35 brands, ranging from mass-market staples like Joe Boxer and Ed Hardy to Cannon linens and Material Girl, the line of apparel and accessories from Madonna and her daughter. But with many of its US retail partners, struggling with falling traffic and weak consumer demand, Iconix is looking elsewhere to expand.
"With what is happening in America we don't see large growth there over the next couple of years, but we do see stability," chief executive Neil Cole told analysts after the company reported quarterly results in April.
Should the Peanuts movie prove to be a hit, it could help Iconix double its revenues, which hit US$433 million last year, Cole said.
The company declined to comment for this article.
Already, the brand has paid some dividends: Walt Disney's ABC network renewed its long-standing contract to air the popular Peanuts holiday specials 18 months before it came due.
Iconix recognised US$17 million of the US$21 million contract in the first quarter, which helped push revenue up 11 per cent to US$116.1 million and non-diluted adjusted earnings per share to 72 US cents, a 33 per cent increase from the same time last year.
There is no telling how well the film will be received, of course. For every hit like The Lego Movie, which has brought in US$256.7 million at the US box office, according to Box Office Mojo, there has been a film like 2013's The Lone Ranger, whose US$89 million in US box-office take paled against an estimated cost of US$215 million.
Although the percentage that Iconix could reap from next year's film was not disclosed, the Peanuts brand should command a premium, said Charles Grimes, a lawyer who specialises in character licensing and has worked with properties including Archie comics and Disney characters.
It would "not be inconceivable" for the company to get an upfront fee of US$10 million or more for the theatrical release of the film, plus additional fees once the box office draw topped certain milestones, Grimes said.
Iconix would also likely get between 7 and 14 per cent of film merchandise tie-ins, such as T-shirts or toys, he said.
Sesame Street Workshop, the non-profit firm that owns the licence to Elmo and other Sesame Street characters, made US$46.5 million from licensing in the previous year to June, according to its most recent financial statement.
"Peanuts has a huge growth ahead of it," said Cliff Greenberg, whose Baron Small Cap fund has been buying shares of Iconix on dips in expectations that it will continue to expand its entertainment division.
Chris Terry, an analyst at Hodges Capital, said his company began buying shares about six months ago on expectations that the Peanuts licence will pay off.
There is caution, however, in some quarters.
The lack of clear numbers regarding Peanuts' contribution gives Steve Marotta, an analyst at C.L. King & Associates who covers the stock, pause. "The company is a bit of black box," he said.
Marotta estimates that Peanuts is the most important individual brand to the company, followed by Mossimo and Candie's.
Nevertheless, he has a "buy" rating on the stock, and a target price of US$47, slightly above the median target price of US$46.50 among analysts tracked by Thomson Reuters.
Shares closed at $42.71 on Wednesday, and trade at a forward price-earnings multiple of 15.3, a full point lower than the 16.7 average among apparel companies.
The company now largely depended on overseas licences for growth and had several joint ventures to sell its brands throughout Asia, Marotta said.