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The Investment Column: HIT

The Investment Column: HIT

SOME SAY that relationships have a tendency to disappoint, but for HIT Entertainment, the children's entertainment company, relationships are the very foundation of its competitive advantage. Peter Orton, the chief executive, seems to have the magic touch when it comes to charming multinational partners into helping him to develop his intellectual property portfolio.

His latest conquest is a deal struck with Mattel, the world's largest toy maker, to market merchandise related to HIT's Angelina Ballerina character. Angelina, who has previously appeared only in print, was conceived by a London writer and illustrated by an Oxford artist. She seemed to be heading for oblivion before Mr Orton saw her potential, and HIT should have an Angelina television programme on air next year.

The tale is the latest in a string of success stories for HIT, proving that its transformation from a production house into a programming distributor is delivering the goods. The company has such strong ties with broadcasters, including the BBC, that it can clinch deals to turn its children's books into TV shows before work on the series has begun. HIT has also proved its ability to turn its intellectual property into programming without surrendering a fraction of its rights.

HIT has also clinched a five-year deal with Nickelodeon, Viacom's children's TV channel, to broadcast a series based on its Bob the Builder character. That should provide decent revenues while it continues to seek out fresh children's stories to develop.

Little wonder that the shares have tripled in value this year. Investec Henderson Crosthwaite expects pre-tax profits of pounds 4.1m and earnings of 4.3p this year, rising to pounds 5.1m and 17.8p in 2001, putting the shares - up 162.5p at 1,992.5p yesterday - on a forward multiple of 112 in 2001.

While HIT is sure to announce more deals in 2000, its rating allows little room for disappointing merchandise sales - the factor that was behind the fall in the shares of Hasbro, the world's second-largest toy company, this year. Take profits.