GMD operates three businesses.
In the UK and Spain it runs a retail operation selling Gaming hardware and software, both new and used.
In the UK it runs an esport arena offering under the title BELONG. Broadly allowing individuals to play with their friends and against other teams. This operation is increasingly being done in conjunction with Sports Direct who own about 30% of GMD.
It also runs a gaming events company largely under the “Insomnia” brand.
The retail operation is subject to all the pressure that are being experienced by other retailers. And it is also in an area where the products are being themselves digitised. No need to go to the shop when you can digitally download the game. With the rise of Google Stadia, maybe even the platform will be digital. The industry is clearly rife for and experiencing disintermediation. The list of issues are obvious and numerous and management whilst putting a gloss on the situation clearly do not see it as the future of the business.
The gaming events operation is patchy and its success limited
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The BELONG operation is seen as the focus of the group and the key to its transformation. Whilst growth rates of 32-72% are discussed in the financial results they come from a tiny base. GTV retail £579m, GTV Belong and Insomnia £5.5m.
It is also fair to say that the company is a big fan of non-GAAP measures. Not just EBITDA but adjusted EBITDA basically cobblers squared.
So clearly probably not unfair to say there is a lot not to like at GMD.
That being said the company has a market cap of circa £45m. Against a NTAV of £90.6m Whilst you wouldn’t choose to start from here is management really (– £45.6m) that bad?
Also the company generated £37.4m of cash in the last 26 weeks and whilst that may not be routinely repeated it is definitely cashflow positive. Making £14.8m PBT in the period. It made £12.3m in the PY period and a loss for the last year of £10.6m after cash. It would be very dangerous to overly extrapolate but I would not be surprised to see the loss nearer £5m than £10m for this year.
It should also be noted that the cash on the balance sheet (part of the NTAV figure) is now £95m and that the average lease is less than 1 year.
So a poor business with a poor recent track record, making GAAP losses with a positive cashflow. A management team trying to find something in the ashes to hang their future pay packets around but a lot of cash in the bank and enough of a margin on the NTAV to allow years of decline.
Possibly a special situation but an increasingly troubled one. I hold but may sell if the price continues to decline or alternative investments require funding.