FUN Details
Intention to withdraw from ASX: Funtastic Limited (ASX: FUN) stock lost over 46.67% on March 27, 2017 as the group expressed its interests in withdrawing from ASX official listing. The group’s announcement came at the back of the low level of liquidity in their shares. The group reported that in the last six months, monthly trading volumes of their shares have been consistently less than 2% of the total shares on issue. Given this lower liquidity, the group’s stock prices have been volatile wherein the stock lost over 6.3% in the last six months (as of March 24, 2017). By virtue of this move, the group expects to raise capital leading to enhance their business which would have a positive effect on their ability to restructure its debt arrangements. As per the advice that the group sought from the ASX, the removal would be subject to approval by ordinary resolution of ordinary security holders, a statement to the effect on removal and update on current negotiations with financiers. FUN further advised that a formal share buy-back, sale facility or any other arrangement for disposal of shares held by its shareholders prior to de-listing does not seem to be an option. Accordingly, shareholders can continue to trade their shares with a willing counterparty on-market on ASX up to the date of the removal from the official list, in case the shareholders approve the company’s removal from the official list. On the other hand, shareholders wishing to trade their shares after this date will be entitled to transfer their Shares off-market to a willing third party purchaser in accordance with the Company’s Constitution. 

Timetable of events (Source: Company Reports)
 
Delivered a weak FY16 performance but improvement witnessed in first half of 2017: The group reported a revenue of $90.9 million for fiscal year of 2016 as compared to $105.9 million in the prior corresponding period. The weak performance is mainly on the back of Conclusion of Leapfrog distribution partnership which led to Sale of Leapfrog products at lower margins. The group also witnessed a more than expected inventory write-down while their international sales slowed especially in USA. FY16 performance was also impacted by the delay of major product launches on the back of regulatory hurdles which are now finalized. On the other hand, the group has been enhancing their Gross Profit Margins from 27% in FY15 to 35% in this year to date of FY17. Meanwhile, FUN also restructured their banking facilities with National Australia Bank while boosted their capital position by raising $1,249,000. As per the first half of 2017 performance, the group witnessed a strong sales in major products like Paw Patrol, Hatchimals, Pillow Pets, Razor portfolio, Identity Games, Messi Foot Bubbles and Messi Training Kits. FUN also got several new brands predominantly in the lifestyle category - Allocacoc Power Cubes, NoNo and SmarTrike, with a few more under negotiation. The group’s Inventory levels enhanced despite lower costs and working capital.
 
Efforts to revamp growth: The group has been making efforts to control costs savings in fixed, warehousing and office expenses. This has been expected to lead to a $5.2 million savings in Fiscal year of 2017 and planning for a more $1.5 million saving by FY18. The group is also cutting senior management salaries in the range of 10% - 20%. Moreover, the group is implementing strategies to ensure their firm is more stable and building a broader portfolio in more categories. Accordingly, they are expanding their customer base including in second tier retailers, online and direct to consumer channels.
 
Recommendation: FUN stock rallied over 25% in the last three months (as of March 24, 2017) and we had considered the stock to be a speculative one. Given the events to be held in the near term, a wait and approach is recommended for now. We put a “Hold” on the stock at the current price of – $ 0.008


FUN Daily Chart (Source: Thomson Reuters)

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