Hasbro: toy glory

Apps, videos, toys, board games - the puzzle is still about creating brands consumers want, not simply a new gadget or knick-knack. Barbie purveyor Mattel's fortunes have sunk in recent years as fewer girls reach for that doll. Barbie sales fell by 12 per cent in 2014, leading to the exit of its chief executive. One explanation for that shortfall - the changing habits of children who simply want to twiddle their thumbs on electronics - looks less persuasive after examining the record of Mattel's rival Hasbro.

Shares in Hasbro, whose line-up includes My Little Pony, Transformers, Monopoly, Nerf, and Play Doh have soared by a third since the beginning of 2014. Build (or partner with) the brands that resonate with kids, and parents will buy both the toys and the heaps of other merchandise that follows in train. They will probably drag the family to the movie, too.

In 2014, Hasbro had sales of $4.2bn. It sorts that into seven "franchise" brands; The remainder of the revenue comes from licensing arrangements with partners such as Disney, for which Hasbro makes toys for Star Wars, Marvel and, soon, the smash animated film, Frozen. Similarly, Hasbro has a lucrative arrangement where it earns royalties itself by turning its toy and game brands into video content (think of all those deafening Transformers movies).

Hasbro shares trade at 22 times earnings, well ahead of its long-term averages. Its enterprise value of $10bn matches Mattel's. But the juicy valuation carries risks. Its first-quarter earnings surprise was aided by a one-time revenue jump from a streaming television deal. And while Hasbro has taken advantage of the growing middle classes around the world - international revenue was up a fifth on a constant currency basis - the strong dollar meant reported international revenue growth was flat. Hasbro has captured the fancy of kids. But kids, like investors, can be fickle.

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