Gfinity PLC (Ticker: GFIN) (AIM traded) - Valued at £27m
Overview
Gfinity plc is a United Kingdom-based company, engaged in the business of e-sports. The company is a provider and broadcaster of esports competitions, both off-line events typically staged from the United Kingdom's e-sports arena in Fulham, London, (although not recently due to Covid 19...) and online events. It is a modern esports company and market leader in the large and fast growing esports and gaming sector and works with some of the world’s leading brands, including Formula 1, the Premier League, Abu Dhabi Motorsport Management, Microsoft, EA Sports, Activision Blizzard, Amazon, BT Sport, SKY and many others.
Share Price
GFIN IPOd (only 2 years after birth!) at 17 pence in late December 2014, with a market cap of just over £13m. Whilst the share price now sits at 3.5 pence, its market cap is higher at £27m, with its share price graph resembling that of a typical new AIM growth company - dilutive placings penning the share price down in the early capital hungry years. The stock market crash in March this year was coupled with a poor trading update from the company in which it announced that it expected full-year revenues to be lower and adjusted pre-tax losses higher than market expectations - the shares tanked to 0.33 pence. It's worth highlighting that much has changed since. The company soon announced a major turnaround plan, including key executive management changes, significant cost reductions and material strategic changes - the share price suitably rebounded to 4 pence - over 1000% up from its March lows. An absolute dream for some lucky investors!
Esports
Esports has been absolutely booming since March and there is no doubt that 2020 has significantly accelerated growth of the esports and gaming industries, with some major tailwinds supporting the company. With live sports off the cards, people in lockdown (including me, being a 33 year old lawyer!) have turned, or returned (as the case may be), to gaming and esports. There is a massively growing trend of youngsters watching e-sports and many reports have highlighted e-sports as one the fastest growing industries in the world. There is definitely a strong move away from major in person events to online activity and virtually produced content and there has been significant growth in traffic to gamer centric/hobbyist websites.
Financial performance
In its recently published 2020 interims, gross profit was up 167%, ongoing costs were reduced by 50% and John Clarke (the new CEO) was pretty bullish on the future financial prospects for the company. Operating margins are increasing, with part of the company's strategic shift being a move away from lower margin activities, and the company is in the middle of turning the business around financially.
The board has a clear plan for growth and monetisation and is targeting Q1 2021 to post its first net profit, which if maintained as I expect, should lead to a significant valuation re-rate. I wish I had bought in earlier this year!
It's also worth noting that the company has a decent cash pile and therefore no imminent discounted capital raise is on the cards.
Corporate action likely
A couple of months ago, GFIN announced it had commenced a formal sale process. So far, it has not received any formal offers but this is certainly something to keep an eye on. It's been made clear there is also the possibility that the process will lead to the company making acquisitions, forming partnerships, or dividing up the activities of the group. However, it appears that a sale is the most likely option, given the apparent number of interested parties. One would expect a decent premium to be paid in the event of a takeover. As you can expect the share price spiked up 40% or so on the back of this news but has now fallen back to a nice looking entry point.
It's worth mentioning that Harry Redknapp has a big long position here (i think via spread bet) - perhaps held in his dog's name??
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