London, UK, 19 April 2017
Edison issues initiation on Game Digital (GMD)
Game Digital (GMD) is a market leader in video gaming with an enviable 32% average share of its two markets. It is executing a major change of strategy aimed at a fuller, experience-based relationship with its customer group, which should bring reduced dependence on the cyclicality of the games market. For the moment management is focused on the transition, while the balance sheet, and hence the dividend yield, is well protected.
We value the shares on three metrics: peer comparison, DCF (using a high 15% cost of capital to factor in execution risk) and sum of the parts, in which we separate out the cyclical and growth elements of the business. These give a valuation range of 88-100p with a blended valuation of 93p. This implies an FY17e P/E multiple of 34x, which is unlikely to be seen soon: the shares represent an opportunity on a medium-term view.
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