Good morning,

It's the last day of H1, which means that some companies are producing results today because they have to (if their calendar year-end is December).

Better companies tend to have their results known long in advance of deadline, and it puts investors at a disadvantage when they have to wait so long to see what is happening, so this is a red flag. It's not that any company which does this is uninvestable - it's just something which should spark extra caution!

Onto a few updates:

Game Digital (LON:GMD)

  • Share price: 23.6p (-28%)
  • No. of shares: 170.9 million
  • Market cap: £40 million

Trading Update

I last covered this games and console retailer at the interim results in March, when the share price was 42p (for context, it IPO'd at 200p in 2014).

Value destruction in terms of the share price has therefore been immense and investors are now again pricing in financial distress. It last went into administration in 2012.

Consumer demand for Nintendo Switch has been, and remains, very strong, however the level of supply to the UK market has been lower than expected. These lower levels, combined with continued softness in our core Xbox and PlayStation markets, have impacted sales.
The Group still expects to deliver positive Group GTV2 growth in the secondhalf of approximately 5-6%, however this is below our previous expectation.  As a result, we now expect Adjusted EBITDA for the full year to be substantially below previous expectations.

You don't need a particularly long memory to know that when things go bad at GAME, they go really bad.

But since already halving its UK stores from the peak, and disposing of nearly all the international operations, it seemed to have a much better chance of sticking around for a decent period of time in its current incarnation.

The harsh share price reaction today may also be related to this paragraph:

Significant efforts are being made on reducing fixed and variable costs across the Group's UK retail footprint, where we have over 220 lease events to manage by the end of 2018.

That sounds very complicated but the average UK lease length is just 1.2 years, so it's not a surprise that there would be so many lease "events" over the next 18 months.

I'm intrigued as to…

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