Overstone UCITS Global Smaller Companies Fund on Spin Master Corp.
Thesis
The fund initiated Spin Master because the company owns enduring entertainment intellectual property, notably PAW Patrol. Ownership enables the company to monetize toys, television, films, games and merchandise rather than simply licensing someone else's characters. Animated franchises can engage successive generations at relatively low production cost, supporting long franchise lives. Tariffs, retailer concentration and the poorly timed Melissa & Doug acquisition caused a severe derating that allowed the fund to buy near the company's historical lowest valuation. The managers favor the mix of owned intellectual property, a strong balance sheet, innovation and inexpensive shares.
“We believe the combination of owned intellectual property, strong balance sheet, history of innovation and a modest valuation is compelling.”
Key risks
- Toy retailers gained bargaining power after Toys R Us failed.
- Tariffs affect toys manufactured predominantly in Asia.
- The Melissa & Doug acquisition has damaged performance.
- Licensing and distribution partners share part of PAW Patrol economics.