ferret's stock to watch: funtastic limited

Ferret's Stock to Watch: FUNTASTIC LIMITED
07:58, Thursday, 3 March 2005

PREVIOUS PROFIT GLITCH SHOULDN'T WORRY CURRENT FORECAST

Sydney - Thursday - March 3: (RWE Australian Business News)
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OVERVIEW
********

Ferret gave Funtastic a bit of a tickle early in February when
the shares were $2.10.

He was a bit worried after the shares drifted back to around
$1.94 and attributed it to a profit glitch last year over problems with a
one-off foreign exchange contract written in 2003 for toy purchases which
cost more than anticipated.

The upshot was a thinning of margins causing Funtastic to take a
$3 million hit.

Funtastic is a leading toy and homewares distribution and
marketing company which last month reported an 11 per cent net profit
increase to $16.89 million on net sales of $311.3 million, up 39.3 per
cent on the pro forma figure.

Directors declared a final fully franked dividend of 5c per
share, making the total payout for the 2004 year 8.5c, an increase of
21.4 per cent over the 7c paid in 2003.

The final will be paid to shareholders on March 21.

Back in December Funtastic's managing director David Hendy
declared organic growth in net sales led to a 9.2 per cent increase over
2003 Pro-forma levels.

The business also experienced a softening of demand during
October and November.

Due to these impacts net profit increased 6.5 per cent over the
2003 Pro-forma level, but was below previous expectations.

Mr Hendy said the outlook for 2005 is encouraging with further
growth planned, including the acquisition of Planet Fun in New Zealand
which was effective from January 1.

Funtastic continues to be the licensee and distributor of choice
for many of the world's top toy brands, and this is reflected by the
increases in market share seen during the year.

The fundamentals of the business remain robust, with
longstanding relationships with suppliers and leading retailers a major
strength.

He believes shareholders can look forward to further success from
Funtastic during 2005.

SHARE PRICE MOVEMENTS
*********************

Shares of Funtastic yesterday sold 1c higher to $1.94. Rolling
high for the year has been $2.79 and low $1.81. Dividend is 8.5c a share
to yield 4.38 per cent.

One leading portfolio fund manager suggests that Funtastic should
produce a 2005 profit equivalent to 11 times earnings.

He believes the company is poised for a significantly higher
result after ensuring hedging arrangements are closely monitored.

In 2004 Funtastic adopted a conservative and long term position
on foreign exchange hedging.

As a result of the Australian dollar strengthening, Funtastic has
experienced margin pressure as products landed at rates 10 to 15 per cent
below prevailing market rates.

This hedging policy adversely affected profitability,
particularly in the second half of the year, a critical selling period
for Funtastic.

Mr Hendy said that with the New Zealand acquisition the company
remains confident of a continuing positive outlook for the Australian and
New Zealand markets.

BACKGROUND
**********

Funtastic Limited is one of Australia's freshest, most innovative
companies.

It is also the largest distributor of children's products in
Australia today and claims to be a powerhouse in the world of sales and
marketing.

The company's website profile suggests it is driven by a mission:

"As a leading marketer and distributor of consumer branded
lifestyle merchandise, the Funtastic focus is in on building a
sustainable platform from which to grow our brands through innovation,
speed to market, customer intimacy and value added partnerships with key
stakeholders."

Funtastic was established in 1994 and achieved controlled but
sustained growth through to September 2000 when it listed on the
Australian Stock Exchange.

Since listing, the company has continued to enhance its position
as the pre-eminent children's products company in Australia through
organic growth and strategic acquisitions, namely that of JNH Australia,
previously Funtastic's major competitor, in November 2002 (effective July
02), and Toy & Hobby in September 2002.

In August 2003 Funtastic also acquired one of Australia's largest
apparel manufacturers in Australian Horizons.

Funtastic currently has eight main product categories; Toys,
Apparel, Publishing, Confectionery, Accessories, Nursery, Footwear,
Homewares. Our Toys business includes Funtastic Toys, JNH Toys and Toy &
Hobby toys - each which operate as separate entities encouraging growth.

The Homewares division now includes a formidable Electrical
business covering categories of Home Appliances, Audio Visual products
and Whitegoods.

Licensed brands form a major part of Funtastic's business and
many of the world's hottest licenses have found a home at Funtastic.

Classic brands like Spider-Man, Barbie, Thomas the Tank Engine,
Bob the Builder, The Wiggles and Winnie the Pooh along with more recent
smash hits such as Lord of the Rings, Bratz and Leapfrog.

ENDS

Copyright © 2005 RWE Australian Business News. All rights reserved.

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I don't hold FUN