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City hits reset after Game profit warning

City hits reset after Game profit warning
Disappointing pre-Christmas sales present a new shock for Game

City brokers hit reset on recommendations for Game Digital (LON:GMD) as its shock pre-Christmas profits warning sent the share 35% lower.

The video game retailer, which was resurrected out of administration in 2012, this morning cautioned over disappointing sales.

Game said it expected adjusted pre-tax earnings before interest, depreciation and amortisation in the 26 weeks to January 23 to be about £30mln.

It blamed weak sales since the start of the school Christmas holidays and an unexpectedly steep fall in older-format Xbox 360 and PlayStation 3 game and software sales, down 56.7% to £23.4mln. The company also attributed the drop to a slower-than-expected take-up of sales of new and pre-owned Xbox One and PlayStation 4 software, which rose 20%.

Broker Canaccord Genuity downgraded its recommendation to ‘hold’ from ‘buy’ this morning, while Liberum Capital put its rating under review.

“UK sales have fallen off sharply in the past few weeks at the most critical time of year for GAME,” said Liberum analyst Tom Gadsby.

“While a decline in old format sales was expected the scale has surprised the company while the importance of Christmas trading has hugely magnified the issue.”

Gadsby also highlighted uncertainty over Game’s dividends in light of the new profit warning.

He added:  “While the company still intends to update the market on Christmas sales in mid January we think that a decision on the dividend may be defered until the interim results in March when the company has a much clearer idea of FY profits.”

Elsewhere, investment banking group Jefferies downgraded designer brand Ted Baker (LON:TED) to ‘hold’ from ‘buy’.

And RBC Capital lowered its price target for bus and train operator Stagecoach (LON:SGC) to 315p from 355p (current price: 296p), though the ‘sector perform’ rating was retained.

RBC also moved its recommendation for Nostrum Oil & Gas (LON:NOG) to ‘sector perform’ and lifted its price target to 500p from 300p.


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