Small Cap Value Report (29 Mar 2017) - GMD, ABDP, APH

Wednesday, Mar 29 2017 by

Hi everyone - I'm planning to look at Game Digital (LON:GMD), Ab Dynamics (LON:ABDP) and Alliance Pharma (LON:APH) today.



Game Digital (LON:GMD)

Share price: 42.5p (+7%)
No. shares: 170.9m
Market cap: £73m

Interim Results

I was tempted to buy some of these today, as net cash is now £69 million, very near to the market cap even after a 7% increase in the share price.

However, I resisted the temptation, and will stay on the sidelines for the moment.

It's definitely an unusual situation, though: a large retailer which is still profitable and priced only a little over its net cash balance! (Edit: it also pays a dividend!)

And I did not expect the share price to get so low, so quickly - it is barely 20% the level it was at in December 2015.

It previously traded under the "GAME" ticker, and left shareholders with nothing when it went into administration in 2012.

It IPO'd again two years later with half the number of UK stores it had previously, and with no international operations outside Spain.

But sentiment has soured once again as investors are concerned that games will in the future be downloaded and/or streamed, making physical distributors irrelevant.

I think that's a bit overblown, since there are console sales and gifts for children, etc. where physical stores serve a purpose.

But there is no denying that Game will continue to face changes beyond its control.

Results: A decent set of profit numbers, given the declining top line:


Note that Christmas sales are crucial and the spring/summer months then become very quiet. Last year, the PBT result for the full year was just £5 million.

Lease length: The average lease length of UK stores is 1.2 years, while the average lease length in Spain (where Game also has nearly 300 stores) is just 1 year.

That seems incredibly low, and perhaps means that the risk of investing here is not so great as it looks at first glance. If trading continued to deteriorate, perhaps the estate could be halved again, but without entering administration this time?

Outlook: A decent outlook statement. Management appear to be suggesting that the sales trend has turned the corner, at least in the short term:


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All my own views. I am not regulated by the FSA. No advice.

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GAME Digital plc is a retailer of video games. The Company operates approximately 580 stores across the United Kingdom and Spain. The Company's segments include UK, Spain, and Events, Esports & Digital. Its UK and Spain segments are engaged in the sale of hardware, software, accessories and digital. Its Events, Esports & Digital businesses include SocialNAT and Ads Reality Limited (Ads Reality). The Company's activities include multichannel retailing and merchandising; supply chain management and distribution; software and technology development; marketing and customer relationship management (CRM); sourcing and procurement from suppliers, as well as range of individual customers; event management and production, and training, development and employee engagement. The Company's subsidiary undertakings include Game Retail Limited, Game Stores Iberia SLU, Multiplay (UK) Limited, Game Esports and Events Limited, and Game Digital Solutions Limited. more »

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AB Dynamics plc is a holding company, which is engaged in the provision of testing systems to the global motor industry. The Company is a designer, manufacturer and provider of testing and measurement products for vehicle suspension, brakes and steering to the global automotive research and development sector. Its geographical segments include the United Kingdom, Rest of the European Union, North America and Rest of the World. It designs and manufactures specialized testing systems to produce equipment for its customers to develop suspension, brake, chassis and steering systems; evaluate vehicle dynamics and safety systems on the track; employ driver in loop simulation for prototyping; develop and evaluate the next generation of safety systems in vehicles; test and evaluate the technology for use in future driverless cars/autonomous vehicles, and carry out end-of-line noise/vibration (NVH) testing of power train assemblies. more »

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Alliance Pharma plc is a United Kingdom-based specialty pharmaceutical company. The Company is engaged in acquisition, marketing and distribution of pharmaceutical products. The Company operates in various business areas, such as Hydromol, secondary care, community and consumer products, established products and international. The Company's therapeutic areas of focus include cardiovascular, central nervous system, child health, consumer health, dermatology, endocrinology, gastroenterology, obstetrics and gynecology, oral health, oncology, stoma care, toxicology and travel health. The Company's product categories include prescription only medicines, over the counter medications, medical devices, cosmetics and nutritional supplements. The Company's products include SkinSafe, Lift Plus, AbsorbaGel, DeoGel, LaVera, ClearWay, Gelclair, ImmuCyst 81mg, Hydromol, MacuShield, Lypsyl, Anbesol Adult Strength Gel, MolluDab and Ashton & Parsons Infants' Powders. more »

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  Is GAME Digital fundamentally strong or weak? Find out More »

16 Comments on this Article show/hide all

Gostevie 29th Mar 1 of 16

Hi Graham,

I was wondering if you or any readers have any thoughts on this morning’s final results from Centaur Media (LON:CAU):

At first glance I didn’t thing they were too bad but the market clearly wasn’t impressed as the share price went down about 24%, although it has now recovered a bit and is down about 13%.

Perhaps this spooked the market:

The fall in high margin advertising revenues will result in a 2017 profit reduction which is expected to reverse in 2018 as the strategy to address the industry trend by monetising content and expertise materialises

At least the generous dividend hasn’t been cut (yet).

A potential disposal of part of the business has also been announced:


Disclosure: I hold shares in this company

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ap8889again 29th Mar Reported for Abusive Language

Holy cow, Graham has lost the plot. Game? Didn't they crash and burn before, and the market for physical games has only got tougher. These are almost guaranteed to shrink further...

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cic 29th Mar 3 of 16

ABDP statement says: "Revenues and operating profits (adjusted to add back share option charges) for the six months to 28 February 2017 are expected to be ahead of the same period last year and in line with management expectations." Since share option charges are (probably, depending on the scheme) a cost why add them back? And can we assume that if they were not added back profits would be below same period last year and below management expectations? Otherwise why put the qualification in?

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bestace 29th Mar 4 of 16

In reply to cic, post #3

Not necessarily. From last year's finals (my bold):

Our people are a cornerstone of the future success of the Company and in recognition of their ongoing efforts and performance, we implemented a new share option plan during the year. This year's results therefore include a share based payment charge of £273k. Excluding this non-cash charge provides a more accurate reflection of the underlying performance of the business, with an adjusted operating profit* of £4.65m (2015: £3.79m) representing a 23% increase on last year and consistent adjusted operating profit margin of 22.7% (2015: 22.9%).

A cynic may claim the main reason for adding back the share based payments is to cast the results in a better light, but it is also possible that the aim is to to provide a better sense of the underlying performance of the business.

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Graham Fraser 29th Mar 5 of 16

Hi Graham,many thanks for your report. GMD does look very interesting,though I notice they have cut their dividend from 1.67p to 1p, do you think they are being super conservative ,? It does seem a strange move bearing in mind their EPS and cash balance.

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runthejoules 29th Mar 6 of 16

In reply to ap8889again, post #2

Relax, he hasn't actually bought any... yet... game has transformed to become more of a social / plastic gift space. They just need to add a few arcade machines and a coffee shop I reckon to occupy the dads...

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Graham N 29th Mar 7 of 16

In reply to Graham Fraser, post #5

Hi Graham,

Well, rather than paying a super-high yield, it would make more sense to me to start buying back their shares at this level (presuming they don't think they are going into administration). That would potentially add a lot more shareholder value in my view.

But cash is likely to drain over the summer, and investors are clearly very worried about the future, so an element of conservatism makes sense to me, especially when it comes to the dividend.


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Carcosa 29th Mar 8 of 16

Just thought I would comment on Flybe (LON:FLYB) update today since it has a history of comment from Paul.

I have held a negative view regarding Flybe for a couple of years now and today they issued another dire statement - profit warning

Net debt continuing to climb partly as a result of having to take on more ex-Republic Q400 aircraft. Those aircraft are probably only worth about 70% of what they actually paid for them. Ideally they should have done a sale and lease-back but their failure to do that should be a red flag. However this will not be an issue until some years hence.

Load factor continuing to decline (generally speaking anything below 65% herald's 'lights-out').
Capacity increasing
A new CEO that is 'excitable' but has not stamped her authority on the business; so I have little faith she will do anything substantive over her predecessor.
The start of what maybe two or three years of write-downs and ever increasing 'exceptionals'

Load factors are in fact only against scheduled flights; does anyone know the proportion of charter flights to schedule? Load factors are not such an issue on charter flights because (in theory) even if the aircraft is empty the airline gets paid albeit without seeing possible additional passenger ancillary income.

Anyway, I see little evidence of a real turnaround here; a view I have held for two years.

Today Ryanair hit the panic button: which will not help European airlines. Personally I think it's BS and just Ryanair grabbing headlines again to further bolster revenue. Now there's a CEO worth having....


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tomps3 29th Mar 9 of 16

Graham, hope you don't mind me posting here.

We've just released a video with Gervais Williams talking about the future investing landscape. There's a quick 3.5 mins overview, followed by another, with a fuller 30 mins presentation.

Thought it might be of interest to all here.


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Graham N 29th Mar 10 of 16

In reply to tomps3, post #9

Thanks Tamzin, I'm sure nobody minds. Looks interesting!


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Crusty 29th Mar 11 of 16

ABH, rightly or wrongly, forms part of my Inheritance Tax-free portfolio. The acquisition of Sinclairs portfolio has provided marketing access to may more countries and the benefits have yet to be fully realised. Thus, although debt is certainly a concern in the short term, its near 3% yield and international earnings seem attractive at the current sp.

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Graham Fraser 29th Mar 12 of 16

Thanks,Graham, Good point.Graham.

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herbie47 29th Mar 13 of 16

Looks like CloudTag Inc (LON:CTAG) has gone, this was covered by Paul last December.

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Ramridge 30th Mar 14 of 16

In reply to tomps3, post #9

Thanks for the alert Tamzin. Gervais Williams is always worth listening to.

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Mrken 13th Aug 15 of 16

In reply to Crusty, post #11

Hello Crusty
Just seen your reference to your IHT AIM portfolio.
I am just starting one and have only just recently accessed this website.
Any advice on building this portfolio would be appreciated.

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lemonjar 17th Aug 16 of 16

GAME got game? I ended up over on Roland Head's personal blog ( a great read, of course) and his comments on GAME Digital sparked my interest, especially their ongoing rollout of new Belong arenas. So i tried to find out a little more about how the kidz are responding to this, and came across a pretty positive thread on reddit,

A small signal by itself and i need to look into it more, including all the comments here still, but it might just mean GAME (and Mike Ashley) is onto something with their instore gaming thing. It intuitively makes sense to me - high end kit it expensive, especially VR which is only at the very start, it's fun to (physically) hang out with your buddies which you can't do at home coz you only have one computer, eSports is booming, they're setting up across-store tournaments, they cater for teenager birthday parties and so on. The other thing is, my kids who are still under 10 are growing up with games and tablets just like all the other kids, in a way they're all gamers now, it's just normal and they'd love this stuff when they're a bit older (which they can pay for out of their own pocket money, just saying). I think there's a market for this. If they can get the branding right there might even be some parallels with Games Workshop here?

Anyway, i think it's interesting, definitely a company I'm going to start keeping an eye on.

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About Graham N

Graham N

Full-time investor and independent analyst. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified and hold an audited, FTSE-beating investment track record.  Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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