Mega Brands to bounce back after hit?

Mega Brands’ recent legal troubles have taken a chunk out of its fourth-quarter profit to the tune of $17m, but analysts remain upbeat about its future prospects.
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The firm earned a net $2.8 million down from $20.9 million in the corresponding period a year earlier. Profits were hurt by one-time items totalling $17 million after tax.

Mega Brands said the aggregate amount paid to settle the lawsuits and claims was $13.5 million, recorded as a product liability settlement expense in its 2006 earnings statement.
The company expects to recover the full amount from its insurers.

"We overcame a number of unexpected challenges," said President and Chief Executive Marc Bertrand in a statement.

Consolidated net sales in the fourth quarter of 2006 were $164.8 million, down from $166.2 million a year earlier.

Despite the dip in profits, analysts predict that the firm is through the worst of it and in good shape going forward.

“We believe Mega Brands will see solid upside in 2007, based on improved toy fundamentals and realized synergies. Following the complete integration of its RoseArt business, which the company expects will yield $7-million to $10-million in synergies", analyst Sara O’Brien of RBC Capital Markets said.

Jessy Hayem from Desjardins Securities also has a fairly healthy prognosis for Mega Brands in 2007. The analyst maintained her 'buy' rating on the stock and trimmed her price target only slightly, to $29.50 from $30.

“The negatives are priced into the stock and the outlook remains positive going forward,” she said. “We believe the company has solid licences on hand, both from top-ranked preschool shows (Dora the Explorer, Go Diego Go) and movie-based properties, as well as proprietary product launches.”



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