Lego has been one of the best business stories of the last ten years. In 2004 it was losing $1m a day and lender Morgan Stanley moved in to sell the business. But in the decade since, Lego has turned itself into the fastest-growing toy maker on the planet. It sells ten Lego sets a second and more than 105,000 Lego bricks are made every minute.
Technically, it is one of the world’s largest tyre-makers (all those tiny tyres for Lego vehicles). In short, it’s been “one of the turnarounds of the century”, says David Tweed on Bloomberg. Its profit margins are “eye-watering” at 24%, trouncing its rivals. Unfortunately for investors, Lego is family-owned. So what other options are there?
Mattel “remains king of the toy market”, says Christina Zander in The Wall Street Journal. In terms of worldwide sales, it’s still beating Lego, and its margins are still generous at 12.8%. However, depending on how the six-week pre-Christmas frenzy goes this year, Lego may snatch the sales crown for 2016.
Meanwhile, the strength of the US dollar has hit Mattel hard, and it has struggled to launch new products. Shorter, curvier versions of Barbie (pictured), intended to widen the brand’s appeal,have fallen flat. As a result, Mattel has approached faster-growing Hasbro, with its popular Disney franchises, over a potential tie-up, says Ed Hammond on Bloomberg, in a deal that would bring Barbie and My Little Pony together.
However, neither company is cheap. Mattel and Hasbro both trade at more than 20 times earnings. And the closest thing to Lego that you can own – theme-park operator Merlin Entertainments – is just as pricey. It owns Legoland and Madame Tussauds and is 30% owned by the Lego family, but Merlin trades at 22 times earnings, with a paltry 1.4% yield.
Instead, if you want to invest in toys, try Aim-listed Character Group (Aim: CCT). Sales have jumped from £67m to £99m in the last two years and are expected to keep growing – Character owns the global rights to make Teletubbies toys, which began hitting the aisles this year, and also makes Peppa Pig and Scooby Doo toys. At 11 times forecast earnings, it offers an inroad into a lucrative sector.