GAME targets France expansion

The Guardian

newspaper has asserted that the GAME Group is ‘caught up in the general consumer gloom’ – despite the retailer giving a positive presentation on its prospects in France.

According to the paper, GAME shares have slipped 3.5p to 143.75p today – but analysts have been positive about the firm’s operations in the country.

Simon Davies at RBS said:

"GAME Group gave a presentation on its French business yesterday. France is the second biggest video games market in Europe, worth an estimated €3bn in 2008, but with household penetration of games consoles running at just half the level of the UK at around 26%.

"Game is the number two independent, with a 10% market share, behind Micromania (the soon-to-be GameStop subsidiary, with 23%) and the hypermarkets with 45%. It plans to increase store numbers from 192 to 250 over the next few years, it is already market leader in pre-owned, which should continue to grow, while it has relaunched its online platform and is aiming to become market leader (given the relatively small position of online majors, such as Amazon).

"The group will give a trading update on December 2, but with strong demand for recent new releases (Gears of War, World of Warcraft, Call of Duty and the imminent Need for Speed), a more stable pricing environment, and continuing good momentum for the Nintendo Wii, we expect Game to prove relatively resilient.

We have already factored in a material slowdown in like for like sales in the second half (+4.5% in the UK, verses +24.2% in the first half), and with margins rising with the software mix, we think our forecasts (pretax profits of 119.9m) remain well under-pinned."

At Oriel, analyst Eithne O’Leary commented:

"Faced with a difficult property market in France, Game has successfully combined acquisitions and organic growth to create an increasingly profitable 192 store portfolio. Increasing scale, a strong product line up and an already well established Nintendo fan base in France all bode well for profitable growth both this year and next.

"We suspect that Nintendo’s creative and extensive advertising campaign is having the desired effect both in the UK and in France with the Wii Fit selling out and substitution sales rising.

"The switch to a higher concentration of higher margin software sales will drive the group gross margin up by 100 basis points for the year to January 2009. All the indications are that strong recent software launches such as Call of Duty (14/11) and Football Manager (14/11) have sold well and without signs of slowdown. General stock market volatility has hit the shares badly leaving them trading on a paltry 5.6 times 2009 earnings per share and Game remains one of our key buys in the retail sector."

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