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GAME Digital soars on better-than-expected second half performance

The high street retailer warned investors in June that full-year profits would come in “substantially below” expectations, but today’s year-end update seems to have eased a few concerns
girl playing video game
GAME is jumping on the rapidly growing esports bandwagon

GAME Digital PLC (LON:GMD) was one of the top risers in London on Tuesday after the video games retailer said it enjoyed better-than-expected trading in its second half.

The company told the markets back in June that challenging conditions in its key UK market would mean gross value transaction would only grow by between 5% and 6% in the second half - lower than it had previously hoped.

Sales better than expected, particularly in Spain

However, today’s year-end update showed that GTV in the six months ended 29 July came in at 6.8%.

As expected, UK GTV was 1.3% lower than the same period in 2016 but its Spanish division picked up some of the slack, with GTV there up 23.1%.

It seems that the cyclical video games market is back on an upswing as well, with the release of the Nintendo Switch console in March boosting industrywide sales ahead of the expected launch of the new Xbox later this year.

UK and Spanish video games sales rose 8.8% and 15.7% respectively in the second half. That would've been higher in the UK as well, had there not have been supply issues with the new console earlier in the year.

Given all of the above, GAME said revenues for the 12 months ended 29 July should come in at £780mln (2016: £823mln), while GTV is expected to be £891.7mln (2016: £912.6mln).

That’s perhaps not as bad as investors feared back at June’s bearish update.

New Xbox and game releases a further boost

"GAME has made further progress in the second half of the year as we continue to focus on developing our strategic initiatives whilst creating a new cost base for our UK retail business to address the challenges in the UK console market,” said chief executive Martyn Gibbs.

"We have been encouraged by the recent growth in both the UK and Spanish markets overall and we expect that this momentum will continue into peak trading driven by the benefits of continued customer demand for the Nintendo SwitchTM, the launch of Microsoft's Xbox One X and a strong line-up of new games releases.”

Esports offering now the focus

GAME reckons it will have £47mln (2016: £43.1mln) in cash at the end of the period, some of which it will use to beef up its esports offering which it has identified as having “significant potential”.

It currently has 18 BELONG stores where gamers can go to play the latest video games with friends and other players online, while it snapped up Multiplay in 2015 to boost its presence in this area.

GAME said it has prioritised accelerating this side of the business in order to “fully capitalise on the strong growth potential” of its esports activities.

Esports focus a ‘sensible move’

“GAME delivered a strong second half performance thanks to sales of Nintendo’s Switch console,” said ETX Capital analyst Neil Wilson.

“Nevertheless, full-year revenues were lower and the turnaround needs work, hence the rationale for the bigger push into ‘esports’ and other mass participation gaming.”

“Game says it will prioritise further development of its experience based gaming and esports by focusing management and capital resources on these areas. This looks like a sensible move.

“Esports is a fast growing industry but still relatively immature; IHS Markit said the market grew 19% last year to six billion hours of game time watched worldwide and it’s estimated that this will reach nine billion by 2021.”

Shares soared by 30.9% in early deals to 32.2p.

--Updates for comment and share price--

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