Game Digital earnings likely to disappoint, 2017 to be flat

3rd Aug 2016 10:20

(ShareCast News) - Full year results are likely to be at the low end of forecasts for Game Digital as the retailer continued to endure challenging conditions in its markets.For the 53 weeks to 30 July, revenues will be down by around 6% to £815m, driving roughly a 40% decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to a projected £28.1m.Group gross transaction values were broadly flat in the second half at £316.8m, resulting in a total GTV for the 53 week period of £924.8m, down from £962.4m the year before.As expected, low margin games console sales declined badly during the second half, with sales of both mint and pre-owned content also remaining soft, down by a combined 5%.On the upside, there was good growth in its pre-owned Gametronics segment of 65% and with Accessories boosted by Toys to Life to deliver 20% growth.Costs were also higher due to the ongoing investment in the Multiplay/eSports business, which is not expected to start paying its way until 2018.Year end net cash was slightly better than expectations at £40m, and the company has secured a third party £75m financing facility that will provide working capital funding up to 2020.Looking forward, management were encouraged by the strong line-up of highly anticipated new products scheduled for launch over the next 12 months including, PlayStation VR, Oculus Rift, Xbox One S and Nintendo NX."These exciting developments will provide further opportunities to engage with both existing and new customers," the company said in its statement."However, the Group needs to balance these developments against the prevailing conditions in our markets. Accordingly, at this stage we retain a cautious sales outlook for our retail markets in the year ahead."As such, adjusted EBITDA is expected to be flat in 2017 before the before the financial impact of its planned new live gaming activities.Broker Canaccord said that, given this increased investment in Multiplay and the planned launch of new in-store live gaming activities, which it anticipates at a combined impact of £3m, EBITDA will fall next year, albeit broadly level at a like-for-like basis, while Game should remain cash positive even at the nadir of its working capital cycle.