Shares digital

Is Corgi acquisition a smart play?

by Rachel Robson

Toy cars maker Corgi Classics has been snapped up by Hornby in a £7.5 million cash deal, adding to the firm’s mini model empire. Hornby is buying the brand, tooling and intellectual property rights from NASDAQ-quoted Corgi International, bringing together die-cast vehicles alongside its existing model trains and Scalextric racing sets.

Hornby believes the Corgi product range will be highly complementary to its existing hobby brands, and chief executive, Frank Martin, is confident that Hornby will grow the scale of the business rapidly.

David O’Brien at Altium Securities is more sceptical about the deal, believing Hornby has bought another ‘sick patient’ and that ‘its time spent convalescing is likely to be longer than expected’ and ‘could divert management’s attentions from the core businesses.’

Hornby issued a profits warning at the end of March due to shipment delays from the Far East and a consumer spending slowdown in the UK. Taking the difficult retail environment into account, as well as his belief that the turnaround of Corgi will take longer than Hornby expects, O’Brien has marginally reduced his current year estimates, cutting 2009 EPS by 0.6% to 17.3p. However, he has upgraded his core recommendation to ‘hold’ from ‘sell’ due to the decline in the share price to within 5.5% of his 155p target price, downgrading his trading recommendation from neutral to sell.

Shares says: Whether or not the acquisition is a sensible move, only time will tell. Investors should sit tight.