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Good top-line growth but an increase in overheads (some timing, such as marketing spend for H2 release, but some more entrenched, like staff costs and inflation to general costs) has resulted in falling profits. The wider indie games sector is out of favour at the moment, thanks to reduced investment from platforms in indie games and a huge number of AAA+ titles being released (i.e. very competitive.)
Team17 has 'amicably parted ways' with a CEO of one of their subsidiaries at the same time as making 50 or so staff redundant https://www.eurogamer.net/significant-job-losses-likely-at-worms-publisher-team17-sources
Hell Let Loose - the IP acquired for over £20m, has performed poorly this financial year thanks to updates that alienated the player base.
Plus longstanding CEO is leaving for a marketing executive.
So all a bit grim for the company. You have to trust that the large amount of development spend being capitalized on their balance sheet is going to the right places in order to see a greater return in 1-3 years times. With this spend they're currently around breakeven.
Yes. Appointing someone internal and who is horrendously under qualified screams there's more to come here.
This was the bet though - is the CEO a genius who has the ability to run a listed company of disparate game companies, keeping spend and operations under control? Sadly, the answer is an emphatic no.
Perhaps you can hide it when the tide is out and games are selling well. But a couple of poor releases and lack of investment from the big players and the rug has been pulled out.
Expensive lesson.
Well, we can see why all the fund managers were selling. God knows why some of them were buying.
I think the worst bit about the update (and that is saying something) is appointing someone internal as the new CFO. This company clearly needs far better controls. The new CFO was previous head of M&A (which failed) and has a masters degree in finance!? Lord help us.
Well the rot has stopped. The Bookwalker (latest game release on 22nd June) is getting great reviews. A healthy number of players according to Steam DB. Isn't a game changed but is a good example of their decentralised, portfolio approach in action - some developers will release great games, some poor, and the bet is that the great ones make up for the poor ones.
https://steamdb.info/publisher/tinyBuild/
Orangetree your graph would benefit from including net debt / cash to contextualise their spend. They raised a large amount at IPO. They're intentionally spending that on game development. If they've managed cash well, it should be at its lowest right now before rebuilding following the game releases. Managed poorly and they'll need another raise.
Yeah I have to say I haven't tracked his performance at all. I always thought he came across as very smart, but that doesn't necessarily mean he's a good investor.
I do enjoy the Vox interviews, but sometimes I think that's because I'm a sucker for a good sounding 2-3 minute sound bite on a company. In reality if you prepared what you were going to say you could probably make a lot of bad companies sound good in that time. I listened to the one with Gervais Williams from Premier Miton the other day and it sounded to me like he'd chucked some cash in a load of pre-revenue companies and hoped for the best!
But worth listening to Paul Jordan's chat with Vox Markets. He seems to say that he can understand why funds were selling but is chalking it up as a school-boy error which they can learn from.
I think what's clear is we'll see if their strategy pays off in the short term. They can't sustain the huge amount of investment without some return. That return has to start coming in around about now if their $16.1m cashburn from H2 last year is repeated in H1.
https://www.voxmarkets.co.uk/articles/q-a-with-amati-global-investors-fund-manager-dr-paul-jourdan-cb09037/
Good points ggrantsu. I think you've hit the nail on the head with the red flags. I still have over 5% of my portfolio here (having dropped from 10%.) I'm tempted to de-risk a little given these red flags, though that's usually a sign it's reached the bottom (!)
On Amati, my comments were pure speculation. I don't think they would have added any more to their position but, as other fund managers were offloading, they were likely keen to help mop them up to preserve the share price somewhat.
Looking at Simply Wall St. + comparing annual reports it looks like the main seller was Premier Miton with JP Morgan and Baillie Gifford & Co. also selling some. Amati and Franklin Templeton were the buyers.
Shear - I'm not sure about hand over fist, but maybe you're right - the RSI got to the 50s / 60s in April and May only for it to fall off a cliff again.
That is shocking re: Farworld Pioneers. It's a similar pattern to Hello Neighbour 2 - release the game with huge bugs but promise users you'll work hard to improve it over the next 12 months. I don't get it. Seems like a terrible plan and will just stop people from buying the games because they can't trust if it'll be good or not (until 12 months have passed, things have been fixed but by which point no one else is playing.)
That being said, it's worth placing this and Hello Neighbour 2 in the context of their other releases and broader approach (to develop, own and release a 'catalogue' of games which results in less reliance on individual titles as you might see at FDEV.) Their overall catalogue is pretty well-rated and not overly dissimilar to TM17 - albeit the latter has some bigger titles (including Hell Let Loose which they bought.) My hope is that TBLD has a hit over the next 6 months. I have some hopes for FEROCIOUS, Sand and Bookwalker (the latter coming on 22 June so we'll find out about that soon.)
https://steamdb.info/publisher/tinyBuild/
https://steamdb.info/publisher/Team17/
https://www.tinybuild.com/single-post/tinybuild-s-non-e3-round-up
I reckon Amati added to their position out of need rather than desire - buying shares off institutions that were dumping. Paul Jordan suggested the fix was pretty easy - basically do what they said they'll do - release the games which have had increased development, make some profits and return to a decent cash position (forecast to get back to $26.5m following more development costs in H1.)
I think the drop last week was due to the AGM statement and the company asking permission to undertake a share placing for acquisitions. I think Luke Burtis leaving was known news.
Really poor movement in the share price today. It seems that institutions and retail investors have been selling this since January with no credible reassurance from the company to buck the trend / encourage buyers. Vox Markets recent interview with Paul Jordan of Amati suggested institutions were spooked by a sudden increase in R&D spend on new games. This, combined with COO and co-founder leaving + the CEO being a young entrepreneurial maverick + poor macroeconomic situation + poor release of the latest big game (Hell Neighbour 2) = tricky times.
I'm holding against my better judgment thanks to what looks like a solid games pipeline, and some trust in the CEO. He clearly acts with integrity, but it's his control of the business which is a credible cause for concern.
Will these guys make any money from the recent Harry Potter video game and/or upcoming Amazon TV series? (I think it was Amazon)
Agreed, Rivaldo. Was a sleep easy investment given the amount of work likely coming their way over the next 10 years. I also really liked the new CEO. Saw him in a couple of interviews and he seemed to have a lot of integrity.
Might well be looking at a different story if they were able to offload the businesses earmarked for sale and redeploy the cash to meet their strategic aims. It seems the prospect of cash coming sooner was too good to miss.
Only 3% of my portfolio so can't complain - just wish I had topped up more sooner!
Shear - I think an important consideration is management. I became interested in DEVO last summer but soon realised their newly appointed CEO and CFO have no considerable background in the video game industry (rather approx 30 years in equity markets...) and their first set of results were horrendous with a lot of it reading as if they just didn't understand how the industry works / how to sell a video game.
I think TBLD CEO is the complete opposite. Very knowledgeable about the industry but perhaps equally inexperienced in other areas (knowledge of the controls and discipline required to manage a large, international company?) Time will tell whether he's a genius, and/or the people around him provide sufficient support.
Very useful digging. Thank you for sharing that.
Worth noting from their half year they "expanded the size of the revolving credit facility with Bank of America from $25m to $35m and extended the maturity date to three years" provides some reassurance re: fundraise (esp. in context of being over $25m in cash)
I think TBLD's games will be more resistant in any consumer downturn. They're indie, cheaper and generally seem better suited to a younger audience who don't pay the energy bills etc. (if anything their disposable income is going up with salary increases.)
I share the disappointment re: Hello Neighbour 2 - largely because the CEO mentions the game in every bloody interview he does (wouldn't have mattered so much if he didn't do that.) It's good to see they're listening to feedback and developing the game further (check out latest posts on Steam News). Unfortunately though the real opportunity is with the launch. Those bad reviews will hang around online forever when someone is looking for a new game to buy.
Regardless, completely agree with others, great fundamentals and the share is now undervalued. I'm not entirely convinced by the CEO now given the poor release of Hello Neighbour 2. He's clearly still learning.
https://store.steampowered.com/news/app/1321680
Yes, I think concerns re: Eastern Europe is a big one. From memory I think they operate - or at least have partners - in both Russia and Ukraine, and earlier in the year were incredibly supportive in helping to relocate and generally help those affected. I personally think that's a really good thing, albeit will naturally go against most shareholders aim of generating max profit i.e. unnecessary expenditure.
Updates aren't very regular, so genuine uncertainty as to how they are trading at the moment. Hello Neighbour 2 has come out to mixed reviews, albeit that was also the case for the first Hello Neighbour and that didn't stop it from being a massive hit. Underperformance of this title may be offset by their very decent back catalogue recently generating circa 70-80% of sales.
I also know they are on the hunt for acquisitions. They have suggested they won't dilute shareholders at this share price, so may look to load up on debt (I think recently agreeing a £40m facility?).
I think these things + absolutely zero liquidity will affect the price. I have about 5% of my portfolio at these prices, but can't consider more in case the next update isn't hugely positive which - combined with the low liquidity - could send this into a nose dive (and potentially a great buying opportunity!)
Seems like a quality company if growth continues though:
- ROCE over 15%
- Gross margin 65%
- Op margin 30%
- Rolling 1y PE 13
- Forecast £14.5m net income. Current EV £177m (i.e. mcap of £212 less very decent £35m in cash)
- CEO is hugely passionate and knowledgeable
DVRG had a cash and cash equivalents position of £1.18mil.
Am I reading the cash flow statement that another way of putting it is £2.9million net debt? i.e.
- (£1.6mil) in operations
- (£2.3mil) in investing activities
- £3.2mil in financing activities
= £1.18mil thanks to the financing activities?
I'd also argue that Rev's main audience (14-26 or so?) won't be as affected in a recession as others. Likely live with parents, don't have kids, have low level jobs which have seen the biggest percentage increases in pay. I think that bodes well.
That being said, £1 is a approx £300million cap which is 28 PE if they meet their £11mil net income target. Probs fair value in a bull market but not in a bear. Patience is required.
But, perhaps like you, lesson learnt here re: timing. Invested because of the story, surprised at £22mil EBITDA. Should have sold at 116p but didn't!
Yeah I reckon 10 * EBITDA is fair value. Anything less is buying territory for me (£22mil being last FY rather than next..)
This year I believe the forecast is £236mil of earnings & 11m net income, so currently on a forward PE of approx 14?
I also think they've got good comparisons for this HY as they're now rolled out in Boots, Wallgreens etc. so should see decent uptick thanks to that along with organic growth thanks to more holidays, festivals, back to office, parties...
I have to say I'm not surprised at the price. 10 x EBITDA is the going rate for a lot of these companies at the moment.
I'm in at avg. price of 120p. I got caught up in a bit of the hype / valuation Paul Hill was throwing off. Silver lining is with, this org's growth rate, 120p may soon be 10 x EBITDA!
Is anyone else concerned by there being £6.7million sitting in receivables at 31 Dec? I make that over 70% of their income (£9.2mil)
It's been audited, so I presume it's legit, but it is alarming that after a year of trading you have that percentage yet to be collected.
Do we think we will be profitable by Oct 22 and therefore able to service our loan payments (500k per month)? I believe the alternative is to be diluted at a price 80% of the VWAP of the 5 days prior, but happy to be corrected...