Midas: Peppa Pig's US deal brings big rewards

By Simon Watkins for The Mail on Sunday
Updated: 11:03 EDT, 15 June 2011

Every parent of a pre-school child will be familiar with Peppa Pig, the porcine star of her own animated children's television programme.

Money-spinner: Peppa Pig merchandise is worth £200m a year in Britain

As well as her TV appearances, Peppa and her co-stars are linked to a mountain of merchandise from clothes to toys, which are worth about £200m a year in Britain.

Peppa's TV programme was launched in America in February and last month the precocious piglet secured a deal with Fisher-Price for a range of toys set to hit the US market in time for Christmas 2012.

Unsuspecting parents do not know what is about to hit them, but analysts estimate the US market for Peppa merchandise will be as much as £600m.

It is one of the key reasons why investors should take a look at shares in Entertainment One, the company that distributes and licenses Peppa Pig.

Shares jumped on news of the US licensing deal and hit a peak of 175p on May 31, but they have since dropped back to 161.5p, which marks a good buying opportunity.

Entertainment One was already growing strongly. Profits for the year to March were up from £8m to £11.4m.

Underlying profits, excluding one-off payments and depreciation, were £32m, up from £23m, on sales up from £419m to £469m. Entertainment One produces its own programmes and films, but also acquires and manages the rights to independently produced programmes, as well as handling the licensing of spin-off interests.

As well as Peppa, it owns the rights to British family favourites such as Ben & Holly's Little Kingdom and Humf, the animated comedy film Gnomeo and Juliet, and the blockbuster supernatural film series The Twilight Saga - a favourite of vampire-loving teenagers.

The group released a total of 121 films in its last financial year, generating box office takings of almost £125m, up from about £95m in the previous year.

Releases over the coming 12 months will include The Ides Of March, directed by George Clooney, and the fourth in the Twilight Saga film series, Breaking Dawn.

The TV business is comprised of original productions made in Canada and broadcast in North America and British made family entertainment, which encompasses Peppa Pig and the other children's programmes. The division's turnover jumped by 54% last year and underlying earnings rose by about 29%. Since its financial yearend in March, Entertainment One has completed the acquisition of Hopscotch, an Australian film distribution group, adding that market to its existing distribution business in the key English-speaking markets of America, Canada, Britain, Ireland, New Zealand, Australia and South Africa.

The group also operates a DVD and Blu-ray distribution business in America. Blu-ray disc sales are growing fast, but DVD sales are declining as digital downloading takes off and this division is the one weak spot in Entertainment One's business, with sales and profits dipping modestly last year.

Midas verdict: Entertainment One's core business seems to go from strength to strength. It owns a clutch of top-selling properties, most notably Peppa Pig and The Twilight Saga, which have enthusiastic fans and which are generating big profits through spin-off merchandising.

Should Peppa achieve anything like the success in America that has been achieved in Britain then the future looks very promising. It is always possible that these properties could fall out of fashion or favour and businesses like this must constantly renew their portfolio of programmes and films, but Entertainment One looks well set up for the immediate future.

The shares have already had a good run as the market has largely seen the potential of this group, but the recent weakness - probably as a result of earlier investors taking profits after the American Peppa news - could be an opportunity for long-term investors. At 161.5p, the shares are a buy.