Canaccord cautious on Game Digital as loyalty plans develop

The collaboration sees the two companies cooperating on the Belong loyalty scheme, which will allow customers to pay to play the latest games on in-store PCs and consoles.

Canaccord analysts reduced the target price for shares in Game Digital to 35p from 40p as the retailer has suffered what its management refers to as a “small delay in earnings growth” due to implementation of the Belong plan.

This factor coupled with delays of big-hitting titles such as Rockstar’s next instalment in the Red Dead series has led Canaccord analysts cutting Game’s 2018 full year EBITDA estimate by 14% to £10.5m.

Forecast EBITDA for 2019 was cut a further 4%, reflecting a potentially improved calendar of new videogame releases, while Canaccord analysts view 2020 as an essential year due to the projected release of a new, next generation Sony Playstation console.

Furthermore, GAME Digital is not expected to release a dividend in 2018.

Despite this, the company saw its gross transaction value increase by 3.8% to £586.6m as a 24.7% growth in hardware gross transaction value was driven by the strong sales of the Nintendo Switch console.

The company’s net cash is also expected to be slightly improved after “good capital management” and the disposal of Multiplay Digital.

In closing, Canaccord said: “While our target price represents material upside, given sector volatility and the illiquidity of the equity, there can be sharp, short term movements in the Game share price. From a longer term, more fundamental perspective, we need to see a return to positive estimate momentum in the core, as well as a clear route-map for Belong, before we can be more positive on the shares.”

As of 1554 BST, GAME Digital’s shares were up 30.43% at 30.00p.