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Game Digital shares gain as it reveals positive second half

The challenging ‘known-knowns’ - i.e. low margin sales and a problematic ‘preowned’ market – remain, but, efforts in eSports and a promising line-up of pre-Christmas game releases give investors something to look forward to
GAME digital
Game shares were up 1.6% in Tuesday morning's deals

Game Digital Plc (LON:GAME) shares held higher ground in Tuesday’s early deal as the retail group released a second-half trading update that gave investors no immediate cause for concern.

Indeed, in the context of Game’s recent past, the performance for the 26 weeks ended July 29 could be viewed as somewhat positive.

Game shares climbed as much as 4% at points in the morning’s transactions, and, at the time of writing were up 0.45p or 1.6% changing hands at 28p each.

READ: GAME Digital to put gaming areas into Sports Direct stores

Retail metrics for the primary game market improved by 6.2% year-on-year for Game’s UK business, whilst the Spanish unit saw 5.3% growth – the overall group-wide figures were up 5.9%.

This headline reading nonetheless belies the continual eroding of the market from online rivals, which are able to drive down prices and margin for shop-front retail. Gross transaction value marked a 3% decline in the UK, offset somewhat by 0.7% growth in Spain, for a group-wide decline of 1.6%.

Moreover, the once popular but increasingly challenging second hand (or ‘pre-owned’) segment continues to be a problem for Game.

‘Strong’ line up of new game releases eyed

Management and investors alike will be looking for stimulus in the coming months, which include a number of pre-Christmas AAA game releases (including Rockstar’s Red Dead Redemption, as well as the latest titles in the Fallout, Assassins Creed, Tomb Raider and Call of Duty franchises).

“We have seen the trends of the first half continue during the last six months, with strong sales of lower-margin Digital and Hardware, and continued challenges in the Preowned business that have impacted on the overall gross profit rate,” the company said.

“Where quality new releases have launched, such as God of War 3, the market and GAME volumes have been positive.”

BELONG and Sports Direct partnership

At the same time, efforts to differentiate Game’s retail outlets into destination retail stores, by hosting ‘eSports’ and gaming experiences, continue with the ongoing expansion of the ‘BELONG’ brand.

BELONG now has nineteen ‘arenas’ in shopping centres and outlets around the country, with capacity increasing 16% across the existing sites.

Meanwhile, in partnership with Game’s 25% shareholder Sports Direct, BELONG’s first arena under its collaboration deal last week saw the opening of a new ‘arena’ at Westfield Stratford and the next is due to open at Lakeside Thurrock in September.

Together the two new ‘arenas’ will host at least 74 gaming desks (50+ at Stratford and 24 at Thurrock), representing a notable upgrade to the existing locations which on average have 19 gaming stations.

“Opening the first two arenas in collaboration with Sports Direct represents a significant step forward as we implement our strategy to increase the availability and scale of BELONG, our experienced-based gaming offer and esports activities,” said Martyn Gibbs, Game chief executive.

Positive momentum expected to continue

Giving broader, group-wide commentary, Gibbs added: “We have made further progress in the second half of the year to right-size the UK retail business by reducing the cost base, whilst capitalising on all market opportunities to address the challenges and changes in the UK retail market.

“This review of costs will continue into the next financial year.”

Gibbs added that as the mint retail games market has shown growth through the second half and as there’s a strong line up of new releases coming, he expects positive momentum will continue through the new financial year and the into peak trading period.

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