Small Cap Value Report (Thu 13 Jul 2017) - GMD, BWNG | Paul Scott

13th Jul '17 by Paul Scott

31 comments 12230 reads

Good afternoon, it's Paul here.

The good news is that I've now completed Tue & Weds reports, as follows;

Tuesday's report covers updates/accounts from:

Begbies Traynor
McBride
Ilika
Amino
Bango

Wednesday's report covers:

Fulham Shore
CloudCall
Eve Sleep

On to today's news.

Game Digital (LON:GMD)

(at the time of writing, I hold a long position in this share)

Sky news broke this story yesterday, and it's been confirmed in an RNS today. Mike Ashley's Sports Direct has bought a 25.75% stake in Game Digital. This is what GMD said about it today;

GAME Digital plc ("GAME" or the "Group") has been informed that Sports Direct International plc ("Sports Direct") has acquired 44 million shares, equivalent to 25.75% of the share capital of the Group.

GAME is aware that Sports Direct has taken significant strategic equity stakes in a number of retail and brand businesses across both the UK and USA, and is a leading retailer which partners with major global brands and suppliers.

GAME is pleased that the strategic value of the group has been recognised by Sports Direct through this acquisition of a 25.75% stake. The Group looks forward to working collaboratively with Sports Direct to explore the clear opportunities that a constructive partnership and collaboration can deliver for all stakeholders in the gaming, live events and rapidly growing esports markets in which it operates.

Windows 10 has just decided to do a major update, without warning me, and it took nearly 2 hours. Great, thanks Microsoft.

Getting back to GMD, I think this one is very interesting indeed. It's still profitable & cash generative, is priced well below its own net cash pile, has a sound balance sheet (unlike when it went bust in 2012), and has an average lease length of only just over 1 year. So this one could get interesting, especially now that Mr Ashley has got involved.

We had a very interesting discussion about the company, here on 30 Jun 2017, prompted by Graham spotting the potential special situation opportunity.

N Brown (LON:BWNG)

Share price: 287.9p (down 5.4% today)
No. shares: 283.4m
Market cap: £815.9m

(at the time of writing, I hold a long position in this share)

Historic Insurance Products - Customer Redress…

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InvestedGeordie

13th Jul '17

Am I right in thinking that owning 25%+ of a company means you can have a seat on the board?

bsharman

Game Digital (LON:GMD) is a very interesting situation - The Market Cap is £34 million and the cash in the bank is £69 million. So for each £1 invested you are gaining around £2 cash. Is this correct or am I being over-simplistic?

I thought this recent headline was a classic:

Sports Direct boss Mike Ashley 'vomited into a fireplace after drinking 12 pints plus chasers at a meeting'

If true I hope Mike Ashley will attend the next Game Digital (LON:GMD) general meeting - It could be very interesting!

Howard Marx

A shareholder has no automatic right to be a Director unless the company's Articles of Association include such a provision.

A 25% shareholding does facilitate the ability to block a Special Resolution, though.

dscollard

a good call Paul, nice trade and potential (speculative) investment.

a striking example of DYOR, be greedy when others are fearful and whole host of other aphorisms that are much used but rarely so well illustrated. Chapeau.

bsharman

The net cash of £69m end Jan-17 was post the Xmas trading period & not representative of average annual net cash

End-July 16 Current Assets were £146m compared with £102m Total Liabilities

i.e. Net Current Assets of £44m

This is a conservative Ben Graham style Asset Value & reveals there is still a margin of safety, especially given that there appears to be a profitable business hidden behind those assets.

andrea34

I wonder what anyone thinks to the acquisition/update announcement from ACSO? ACSO seem to be paying quite a lot for TE2 which has mushrooming turnover but is loss-making - it was also only formed in 2013 so I'm sure their directors are rubbing their hands with glee. The trading update from both sides seems pretty positive though... but maybe this is already baked into the price.

tabhair

Crikey, Mike Ashley really has become the King Canute of the retail world, holding back the tide of online almost single-handedly by taking stakes in Debenhams (LON:DEB) French Connection (LON:FCCN) £JD and now Game Digital (LON:GMD) What's next, Bonmarche Holdings (LON:BON) ?

tic_tac_toe

just made a quick filter, there are 75 LSE shares where closing cash balance is currently higher than market cap. Although obviously in itself this is not sufficient to guarantee upside!

Paul, I must say your piece on FUL yesterday was brilliant, I used to subscribe to shares mag, and your analysis and coverage on FUL exceeded any article I have seen them produce. Thanks for your contributions, I, like many others, wait eagerly to read these each day!

I wonder what this ongoing empire building is for... it's not like he is doing a splendid job at the helm of Sports Direct, where the performance IMHO is pretty mediocre compared to JD Sports - perhaps that's why SPD is suffering, because Mr Ashley is too busy shopping with SPD funds...

"there are 75 LSE shares where closing cash balance is currently higher than market cap"

I'm guessing one of these is Johnston Press (LON:JPR) ?

Cash £16m, Market cap £14m.

It also has £143m of long term debt.

I hope the other 74 companies on your list are not as financially distressed?!

Richard Cockbain

I suspect the problem with N Brown N Brown (LON:BWNG) is down to past mis-selling of insurance. FCA had a recent case with Express Gifts earlier in the year where this firm offered protection for damage to the goods being purchased which made them a lot of money and offered little value to the customer.

N Brown also used to sell PPI and so there could be a link to this also.

While it is good that the cost impact has been called out until we hear more from the company or the FCA we are left guessing as to what this is all about.

Small Cap Value Report (Thu 13 Jul 2017) - GMD, BWNG

Game Digital (LON:GMD)

N Brown (LON:BWNG)

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Paul Scott

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