Funtastic investors can chill outBY:CRITERION From: The...

Funtastic investors can chill out

BY:CRITERION From: The Australian July 23, 2013 12:51PM

Funtastic (FUN) 17c

"IN its quest to be seen more as a toy maker than a toy distributor, Funtastic's near-term fate rests with CHILLFACTOR, a $15 silicon cup that almost instantly transforms a soft drink into a "slushie" type concoction.

Indeed, management of the 7-Eleven (which owns the Slurpee brand) should expect a summer of pain after hearing that sales of CHILLFACTOR in the Nordic region exceeded expectations ten-fold.

Talk about selling ice to the Eskimos.

The cups have done well in the balmy Britain and - come to think of it - what a thoughtful gift for a young prince with the lot.

"We are trying to be little bit conservative but deep down we are very excited," says Funtastic chief executive Stewart Downs, not of the royal birth but of the product's potential when it launches here in September.

Acquiring the rights to CHILLFACTOR (and a related product called Slushy Magic) was a partial reason for Funtastic's $15 million placement, executed at 17c a share or a 5.6 per cent discount to the prevailing price.

The deal sees CHILLFACTOR'S incognito Australian inventor get $5m in cash and $5m in Funtastic scrip (25m shares at a 20c subscription price).

Downs says Funtastic had the rights to distribute CHILLFACTOR for at least 10 years, but craved actual ownership to pursue brand extensions.

Funtastic owns the distributor rights to dozens of well-known toy brands but earnings have been skewed to its owned products, notably Pillow Pets, Floaties and Lego stationery.

In the meantime Funtastic's impressive recovery story from its near-fatal dalliance with debt has been dented with a profit downgrade for the 2012-13 year, to EBITDA of $20m-$21m from the guided $23m-$25m. "Directors anticipate earnings per share growth in 2013-14 of at least 10 per cent."

The remaining $10m from the raising will roughly halve Funtastic's debt to equity ratio which currently stands at 60 per cent.

Criterion had the stock as a buy at 16c last September, but then moderated to a hold at 23.5c on March 26 this year.

We're toying with an upgrade but like royal procreation our reviews need time."

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The Australian accepts no responsibility for stock recommendations. The author does not hold an interest in any of the stocks mentioned. Readers should contact a licensed financial adviser.

At 17c looks time to enter for me. DYOR.