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Financial Analysis - Game Group Plc

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Financial Analysis - Game Group Plc
Financial Analysis
— Game Group plc

Du

Xiaoshi Te n g Zhuo Li

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1

Liang Pei Ta o

Xuemei Yo n g y u Wu Yi Kuan

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Executive Summary
Recommendation: Do not invest in the equity of GAME Group at current stage
Share Price Range Forecast
Scenario Free Cash Flow to Equity Aggressive Neutral Conservati ve Expected return Neutral Prob. 0.25 0.5 0.25 1 N/A Predicted price £ 0.99 0.90 0.83 0.91 1.30 1/31/2010: £ 092 underpriced overpriced overpriced overpriced
 

Company Features Highlight


Specialize in the retailing of video games and related products Wide product range and large customer base Operate in cyclical game retail industry Market leadership in the UK At the stage of strategic transformation from offline stores to online and digital delivery

Residual Income EV/ EBITDA

underpriced


N/A

N/A

N/A

underpriced


Tight cash flow in the year 2009 Strong profitability in Preowned Business High concentration on domestic UK business and low profitability in international business

FCF prediction region 
£ 0.83 £ 0.90 £ 0.99 £ 1.30


£ 0.92 (1/31/2010)

Broker recommendations: Neutral Strong Buy Buy Neutral Sell Strong Sell Total Key Risks


3 4 2 1 4 14

Financial Summary and Ratios
2006 £’000 Net Sales Growth EBITDA Margin EBIT Margin 19,816 3.1% 8,223 1.3% 645,118 2007 £’000 801,306 24.2% 45,778 5.7% 32,965 4.1% 2008 £’000 1,491,914 86.2% 95,779 6.4% 75,192 5.0% 2009 £’000 1,968,604 32.0% 153,194 7.8% 124,293 6.3% 83,650 4.2% 29.22% 1.32 2010 £’000 1,772,358 -10.0% 121,488 6.9% 88,590 5.0% 60,467 3.4% 18.24% 1.3

Unclear prospect in GAME’s future strategic focus (digital and online business) Severe competition in GAME’s Preowned business Uncertainty about GAME’s future supplier relationship

Financial Summary21,140 Ratios and 2,737 47,179 Net Income
Margin 0.4% 1.89% 0.98 2.6% 13.44% 1.51 3.2% 23.40% 2.14 ROE Debt to Equity


References: 1st Stock Investment (2011) Liquidity Ratios [Online] Retrieved April 21, 2011 from Bank of England (2011) Overview of Inflation Report [Online] Retrieved March 23, 2011 from Barnes, T. (2005) Cutting Through the Red Tape: UK/Euro Government Support of the Games Business [Online] Retrieved March 1, 2011 from Davis, P. (2000) Pension Funds, Financial Intermediation and the New Financial Lan dscape [online] Retrieved April 18, 2011 from Digital Look (2011) Game Group (GMG) [Online] Retrieved April 15, 2011 from Dring, C. (2011) Financial expert predicts bleak future for GAME [Online] Retrieved April 15, 2011 from Elliott, B. & Elliott, J. (2008) Financial Accounting and Reporting.12th Edition. Edinburgh Gate: Person Education Limited. European Commission (2011) EU Recovery Gaining Ground [Online] Retrieved March 24, 2011 from European Commission (2011) Flash Consumer Confidence Indicator for EU and EURO Area March 2011 [Online] Retrieved March 20, 2011 from French, M. (2010) 85 GAME stores to be closed by 2013 [Online] Retrieved April12, 2011 from Genesys (2009) Poor Customer Service Costs United Kingdom Businesses £ 15.3 Billion per year [Online] Retrieved March 12, 2011 from Global Data (2011) The GAME Group plc (GMG) – Financial and Strategic SWOT Analysis Review [Online] Retrieved April 25, 2011 from Global Finance (2008) Hongman Ma: Buffett’s Unduplicatable 21 [Online] Retrieved April 16, 2011 from 37 Government Finance Officers Association (2003) Investment Policy Checklist for Pension Fund Assets [online] Retried April 1, 2011 from Hines, W. (2010) Game Industry Tax Relief Plans are Shelved [Online] Retrieved March 11, 2011 from Infinancials (2011) Game Group market valuation multiples [Online] Retrieved April 16, 2011 from Kennon, J. (2011) The Current Ratio [Online] Retrieved April 9, 2011 from MSN Money (2011) Game Group (GMG) [Online] Retrieved April 3, 2011 from Nationwide Building Society (2011) Confidence Reaches Record Low during February [Online] Retrieved April 11, 2011 from Nielsen Company (2008) Trends in Online Shopping-A Global Nielsen Consumer Report [Online] Retrieved April 14, 2011 from Reeve, N. (2011) Budget: Osborne Revises UK 's 2011 GDP Forecast to 1.7% [Online] Retrieved March 15, 2011 from Redmond, S. (2011) UK Statistics: Music the surprise performer as video and games both falter [Online] Retrieved April 1, 2011 from Temple, P. (2002) Magic numbers: the 33 key ratios that every investor should know. Boston: John Wiley & Sons The Game Group Plc (2006-2010) Our Game plans: annual report and accounts. Retrieved April 24, 2011 from 38 TIGA (2011) TIGA Publishes Proposals to Improve R&D Tax Credits [Online] Retrieved March 14, 2011 from Yahoo Finance (2011) Game Group (GMG) [Online] Retrieved April 9, 2011 from
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