Small Cap Value Report (Fri 14 Dec 2018) - GMD, FLK, MANO, CCS

Friday, Dec 14 2018 by

Good morning!

Today we are covering:

GAME Digital (LON:GMD)

  • Share price: 23.8p (-5%)
  • No. of shares: 173 million
  • Market cap: £41 million

Proposed admission to trading on AIM

A couple of readers have asked me about GAME Digital (LON:GMD) 's proposed move to AIM from the Main Market. This was announced yesterday, prompting a 5% fall in the share price.

The shares are down by another 5% today, hinting at a delayed reaction to the news from some shareholders.

Let's consider the pros and cons.


  • Saving costs. Comments by BDO in 2015 (PDF) suggested that an AIM listing was £150k/year cheaper than the main market. For a company with a market cap of £40 million, it is sensible to make that kind of saving. In general, companies of that size will find that AIM is more appropriate for them.
  • Saving time. On top of the external costs, there are also internal costs to satisfy the more complex corporate governance requirements of a main-market listing. Life will be simpler and easier for Game on AIM.


  • Weaker governance. Some current or prospective shareholders might be unable or unwilling to hold a company listed on AIM, due to the weaker corporate governance requirements. This is hardly going to apply to Mike Ashley (£SPD) or Miton (LON:MGR), though, who are the top two shareholders.
  • Signals a lack of ambition? I'm not sure if this is fair criticism, but perhaps the proposed move can be interpreted as a sign that management do not think that their shares are materially undervalued. That they have no ambition to appeal to mainstream and larger investors in the future. That they are content to save a little bit of money in the short-term, and don't expect to return the company to anything like its previous valuation.

My view

Personally, I would view it as a positive that Game is moving to the junior market, from a cost saving point of view.

The negatives wouldn't bother me, as I think that the corporate governance requirements on AIM are adequate for a company of Game's size.

So rather…

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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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Fletcher King PLC provides a range of property services and advice throughout the United Kingdom, including property fund management, property asset management, rating, valuations and investment broking. The Company also focuses on general services. The Company holds two funds to acquire freehold office buildings in Botolph Lane adjacent to Monument Tube Station in the city and a building in Sekforde Street, Clerkenwell. more »

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  Is LON:GMD fundamentally strong or weak? Find out More »

38 Comments on this Article show/hide all

Graham Neary 14th Dec '18 19 of 38

In reply to post #427558

You're welcome camtab. Good luck. G

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CliveBorg 14th Dec '18 20 of 38

That story about your dog was a bit of a nightmare, Graham. I'm sure everyone will agree that it was great that it had a happy ending.

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tomps3 14th Dec '18 21 of 38

Poor Frank - he looks gorgeous. So pleased they found the cause. Wishing him a speedy full recovery.

Mello Company presentations

A quick note to say we've added Altitude (LON:ALT) and Shield Therapeutics (LON:STX) company presentations from Mello, there are now 11 companies here:

Still more to follow.

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jonesj 14th Dec '18 22 of 38

In reply to post #427513

Couldn't agree more. More selective & misleading repirting from the BBC.
Rather than trying to talk the economy down in line with their particular political agenda, perhaps the BBC could point out that mid-market rates are 1.255 and the idea is to target a loss of under 0.5% on forex transactions (accepting nearer 1.2% in certain circumstances).

Therefore providing a service & helping some people not to get ripped off.

Incidentally, why do the authorities permit monopolies on foreign exchange within airports ?

Manila airport does it the right way with at least half a dozen competing forex companies & some of the best rates in the city.  We seem to have forgotten where the competition authorities should intervene.

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shauney2 14th Dec '18 23 of 38

Good luck to Frank.Can be very dangerous things needles.My neighbours dog sat on one without them knowing.The old joke happened and he did do it through the eye.He recovered.

Thanks very much Graham and Paul for all your hard work through the year.

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gbjbaanb 14th Dec '18 24 of 38

In reply to post #427563

I figured the move to AIM was about cost savings, and I doubt AIM is considered a lesser market these days, not since it has giants such as Fevertree on it. Its no longer the squalid penny share market even if might still have a touch of that reputation about it.

But as for the long-term, I think the business is less concerned about sales and more about its move to an entertainment establishment - offering its gaming "experiences", ie venues where kids will go to play games, like a modern cross between an old amusement arcade and a sports club, further developing eSports. So forget the retail part - that's going to be an add-on 'gift shop' next to the real business that is an entertainment complex.

Whether that can support the share price or not is debatable, and whether Ashley buys it out and rolls out the Belong venues to his clothing retail stores is an interesting suggestion too, possibly with a tie-in to game branded clothing.

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peterthegreat 14th Dec '18 25 of 38

Re: Graham's comments on GAME Digitals. proposed move to AIM
I would suggest that the most important aspect of this move is the potential for GAME Digital to qualify for Inheritance Tax avoidance portfolios. This tends to have a significant positive impact on share prices of many AIM companies. You only need to look at how these professionally run portfolios have performed over the past 5 or so years to realise the potential impact of an AIM listing (either that or nearly all the managers of these portfolios are brilliant, which I doubt.). If GAME Digital's business does well over the next few years, its share price will be higher on AIM than if it remained on the main market so I would suggest a sensible move. However, this is not without risk as there is a chance that the tax advantages of these portfolios could be removed.

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cmpeckham 14th Dec '18 26 of 38

If only the dogs in my portfolio would recover that quickly.

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mojomogoz 14th Dec '18 27 of 38

On GAME Digital (LON:GMD) - held this for a little spin a couple of months ago as seems a compelling opportunity. However, exited flat as reading material, feeling a little inconsistency in comma, watching presentations, SPD partnership and seeing delays in execution I just feel that management are struggling to execute so much at once. SPD deal could be sensible but I took a negative turn to viewing it as I felt that a management struggling would reach for help like this...but obvs Big Mike isn’t helping that much.

Can see there’s great chance for upside as and when plan comes together but there’s a danger or negative surprise as it takes longer to turn round, costs more, delivers slower profit, bit of format rejig, etc. Then there’s the old shops and big working cap cycle they bring. Room for stressful slip up around this stuff. Plus we know Big Mike’s a beast and likes to pick up assets for free...the deal looks like a cheap way for him to test the idea. If he thinks it works maybe he drags his feet to cause GMD pain or renegotiated on them?

Been in my local Belong and it’s dingy and pokey. That’s alright as it’s about the game...but it means it’s not like a bowling alley where there’s space and time to spend valuable extra margin creating £ on food, drinks and other entertainment.

Altogether, I think GMD probably needs new management as well as new life.

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fwyburd 14th Dec '18 28 of 38

Many thanks for your analysis of GAME Digital (LON:GMD) Graham, much appreciated. I agree that the SP is tempting at this level, given the discount to cash, so I couldn't resist adding a few more to my modest holding yesterday.

And great to hear your dog is better. A few years ago my Black Lab suddenly lost his appetite (unheard of for Labradors), was in pain and had foul smelling breath. I took him to the vet who discovered a piece of wood he had been chewing had lodged in the roof of his mouth. It had obviously been there for quite a while as tissue had started to grow over it but once removed, he was back to normal in no time.

Have a great weekend
PS: I'm sure I'll get thumbs down for talking about my dog when Barnetpeter got so many yesterday for talking politics (harshly, I thought) but I'll take my chances

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JohnWigg 14th Dec '18 29 of 38

re Manolete Partners (LON:MANO), as I hold Burford Capital (LON:BUR), I am naturally interested here.
I haven't read the prospectus, but I have looked at the financials. (The obvious order of things?)
On issue price (175p), PER ex-cash 18.2x (on 2018 PAT) or 12.2x (on assumed 48% pa growth rate, last three years).
At about 200p, PERs are 21.6x and 14.5x.
Flat profits in 2017 due to doubling of admin. exps.
Dividends would be 1.5p or 2.2p respectively.
I wouldn't use 'book value' (especially as a comparison with Burford), as we just don't know what the principles are. We do know that Manolete turns over its investments in about one year, whilst Burford takes several.
Also, Manolete is a niche operator in which Burford doesn't much figure.
It will be a thin market - declared holders have 92% and won't be selling soon.
I think I'd have bought some at the 175p placing price, but can't face it at the current 195p.

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sharw 14th Dec '18 30 of 38

In reply to post #427668

Not just forex at airports that are ripoffs - have a look at this burger from SSP (LON:SSPG) . No wonder it is on a forward p/e of 24 - I don't think any High St. restaurant would get that.

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herbie47 14th Dec '18 31 of 38

In reply to post #427718

It's a captive market, airports all around the world are expensive with a few exceptions. It's one reason why I bought the shares although I don't hold any currently. Rents in airports are no doubt high. You don't need to order anything like that, you can get a sandwich for a £1. Yes rates for forex are bad in some airports.

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JTG 14th Dec '18 32 of 38

In reply to post #427668

Had to buy a few USD this morning for spending; miffed at getting only 1.2295 to £1 (would have been better if $1000). Use it to extract local cash from ATMs fee-free. Why does anyone buy from airports or high-street banks any more? Well, some people still buy clothes, I suppose, but at least clothes aren't all the same. But I still can't tell one $ from another!
From over here the UK train crash is paralysing my share-trading. Not small cap, but why is Aviva (LON:AV.) sub 380P for 8.5% committed div. Or in small-cap territory, Braemar Shipping Services (LON:BMS), now plodding along, not dying, 8% div., earning mostly in $, BDI in mid-range for the year, and the rest of the world not grinding to a halt?

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Julianh 14th Dec '18 33 of 38

Lots of good wishes to Frank for a speedy recovery.

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Funderstruck 14th Dec '18 34 of 38

In reply to post #427523

For those who are Bothered. SOM being cyclical & in a Winter season + Global negativity ; there is reason to expect the price to go lower. The next major Support level is 270p . I shall look again at that price to consider buying myself.

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lomcovaks 14th Dec '18 35 of 38

Forget the shares Graham, I'm just happy to hear your dog's going to be OK. Best of luck.

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DJCP 14th Dec '18 36 of 38

Evening SCVR readers,

Three (sorry, now five) points that I have come to note recently (in order of importance !):

1) Frank (the owner of Graham) - Sorry to hear of your ailment, but elated to hear of the outcome :o) - When you're fully recovered, perhaps you can get your worker (Graham) to take a picture of you in all your glory :o) ... btw, I have just bought a friend's dog his Xmas pressie - A bottle of beer ! (Paul's ears may prick up now ! lol) ... Beer specifically for dogs though, so non-alcoholic - Bottom Sniffer from B&M at £3 for 2 I think ! ...If there's any left, then it may be getting a 'human' taste-test on New Year's Eve - The beer that is, not the bottom sniffing ! lol

2) Re GAME Digital (LON:GMD) - will the move from the main market to AIM not mean that certain fund(s) will HAVE to sell ? Does anyone know who, if any of the Insti's may/would need to sell?
I've bought and sold GMD in the past (luckily at a profit), and have a <25p (hit this week) and <20p target on my watchlist. It's getting close(r) now, but I'm near fully committed on other limit-buys at present.

3) In light of 2) above, a number of shares are dropping into my target-zone - in no particular order - I have just noted that there are more shares in my watchlist than in my actual folio ! - Lack of funds ? Anticipation of further drops ? Lack of conviction ? I have no idea, but more than pleased to end this year building larger positions in fewer shares, as opposed to numerous (too many) 'just-in-case' punts !
French Connection (LON:FCCN) - despite not wanting to get into high street retailers - possible sale aspect tempting
Sosandar (LON:SOS) - for the opposite of French Connection (LON:FCCN) and as a possible mini Boohoo (LON:BOO) Mk2 for the increasing online awareness of the silver-surfers :o)
Revolution Bars (LON:RBG) - previously held and sold, but has it dropped too far now, and therefore ripe for a turnaround or takeover
accesso Technology (LON:ACSO) - A 'wished I had bought' share, but at the now bombed-out price, could this be my chance?

Also considering pure punts on:
Immotion (LON:IMMO) - the VR aspect fascinates me - VR Education Holdings (LON:VRE) is also a contender. Very interested in EVR Holdings (LON:EVRH) not from an investment view (been there, multi-bagged) but purely from the ADVFN banter ! lol
Toople (LON:TOOP) - Even after the 'warning' signs mentioned in the SCRV - this would be purely a day/week play and then forget

4) It appears Paul and Graham are getting busier, so it's it about time they posted a 'B-word excuse', and explained that due to the Europeans (I mean Brexit ! ), the SCVR will now be concentrating on shares with a market cap between £250 and £250m - At the moment, more companies are dropping down into the SCVR realm - Superdry (LON:SDRY) being one Paul recently commented "Good grief, I didn't expect this fashion brand to come back within my small cap remit again - its market cap was over £1.6bn at the start of this year, and is now just over £300m."

5) As an exercise, I wonder if anyone would provide thoughts to this - a 6 share portfolio, mainly looking for income (divi's to re-invest), spread of sectors, non-punts, so basically a secure-ish income growth, but much less shares than a fund.
My (today only) thoughts are (thanks in advance to any replies):
Duke Royalty (LON:DUKE) (financial?) - I hold already, so a bit biased ! lol
O&G (BP or Shell?) - No knowledge of sector, but think should be included !
Next (LON:NXT) (Retail) - A divi-paying retailer maybe hard to find in a few years, until online (Boohoo (LON:BOO) etc. ) peaks
Home Building sector - one from Persimmon (LON:PSN) Bovis Homes (LON:BVS) Barratt Developments (LON:BDEV) etc
Vodafone (LON:VOD) - telecoms
Playtech (LON:PTEC) - Software/IT - Already hold, and think now could be the time to buy (not when I did, years ago!)
Lloyds Banking (LON:LLOY) - banks, but fingers-burned from 2008. Should be combined with Duke Royalty (LON:DUKE) for the 6 sector limit?

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Beginner 15th Dec '18 37 of 38

In reply to post #427763

Lovely post, and especially relevant to me in its latter parts as I am rapidly shuffling towards retirement. For income I too have taken on board Lloyds Banking (LON:LLOY) and Playtech (LON:PTEC) . I have not selected any builders though, as they seem far too cyclical to me. Additionally they seem now to be too dependent on government subsidies. Perhaps a REIT should be included? Tritax Big Box Reit (LON:BBOX) seems priced very generously, and has a well covered dividend (which is not the case at Empiric Student Property (LON:ESP) , Regional REIT (LON:RGL) and others). Is Tritax EuroBox (LON:EBOX) a potential pick given political events?

I hold Royal Dutch Shell (LON:RDSB) , but think the oil sector may be headed for less than glorious times, so now is not really the time to buy here.

My retail/leisure pick is Marston's (LON:MARS) . It is classed here as a 'value trap' which sees a reasonable assessment, but the yield is generous and well covered, even if there is too much debt. A rights issue could be on the offing soon, but there is continual growth by prudent acquisition as well.

Insurance seems to offer steadier dividends than many, and as JTG says Aviva (LON:AV.) seems modestly priced (though I do not think we will see much growth here, given the recent record of management).

Utilities were formerly the dividend hunter's favourite, but regulation and competition have dulled their appeal. Perhaps infrastructure can replace it. HICL Infrastructure (LON:HICL) has further to fall and should soon be a bargain for a dependable return.

Anyway, picking six for dividends I would plump for:
Marston's (LON:MARS)
Playtech (LON:PTEC)
Aviva (LON:AV.)
Lloyds Banking (LON:LLOY)
Tritax Big Box Reit (LON:BBOX)
HICL Infrastructure (LON:HICL)

BUT the way things are going we might be presented with some great bargains amongst growth stocks if this market downturn continues.

Good luck. B

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Beginner 15th Dec '18 38 of 38

In reply to post #427728

I would beware of Braemar Shipping Services (LON:BMS) . They have just branched out into new areas of business, so they are in untested ground. Also the balance sheet is loaded down with goodwill. Aviva (LON:AV.) has stagnated for the last half decade, where competitors have streaked ahead.

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About Graham Neary

Graham Neary

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, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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