Who’d have thunk it would sink so low?
Is it a good buy or a goodbye bye?



It’s all about the £170 million or so net debt;Cards crazy balance sheet funded totally with borrowed money plus more borrowing on top was always an accident waiting to happen as I pointed several times over recent years.
It is a decent business & doing quite well in a very difficult market;but is running on the spot to maintain business which is probably a better performance than many other retailers can manage but it is going to have to pay back its loans;which means a big chunk of its profits are going to lower debt which leaves little for dividends.


The answer, Games, is it’s a good buy… for anyone with any kind of medium to long term perspective. IMHO of course, etc, etc.

In terms of balance sheet, still only c.2x net debt / EBITDA, even on reduced profit expectations - and it remains a very cash generative business model. Sure, special dividends are off the agenda for now - but they were only ever temporary, the clue is in the “special” bit. And that debt can be paid down steadily, even with a reasonable level of ordinary dividend and investing in the existing estate plus new stores.

It’s on c.6-7x P/E, maybe 6x EV/EBITDA, on lowered profits which can still grow decently medium-term - don’t forget, while some of their issues are structural, quite a few are cyclical and/or transitory in nature. Most compellingly, the FCF yield is above 20% on historic figures, and still probably c.15% on current profitability - there is your signal for very good returns, even on flattish near-term earnings and cash flow levels.

This could double in the next year or so from here and it still wouldn’t look expensive - 10-11x P/E, high single digit FCF yield, supporting a sustainable divi yield of at least 5% and growing from there. For a (still) high margin, high cash flow proposition - buy it now before the Private Equity guys start sniffing around, as I suspect they will do.