How’s it been doing?

It’s doing very well. Revenue moved 19% higher over the 12 months to the end of May, supported by many/most of us being confined to our homes. The £90.7m logged was a record for the company. A maiden contribution from Frontier Foundry — its label for third-party publishing — was another positive. 

All told, earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 21% to £38.1m, lending great support for Frontier’s ‘launch and nurture’ strategy. This is where it releases a game and then updates it over time; the idea being that a player will become increasingly invested in a game and continue playing the title for years to come. To date, FDEV has four such franchises: Elite Dangerous, Planet Coaster, Jurassic World Evolution and Planet Zoo.

Can all this continue?

This growth stock’s next game — Jurassic World Evolution 2 — is due for release in early November in time for Christmas. Frontier Foundry will also release three titles in the current financial year (Lemnis Gate, FAR: Changing Tides and Warhammer 40,000: Chaos Gate — Daemonhunters). As a result, the mid-cap thinks revenue will come in somewhere between £130m to £150m. That’s a huge jump on today’s already great numbers.

It potentially gets even better the following year. In FY23, between £160m and £180m is expected thanks to contributions from its hotly-anticipated first Formula 1 management game and its Warhammer Age of Sigmar IP real-time strategy title. The latter is licenced from market darling and FTSE 250 constituent Games Workshop.

So, what are the risks?

One potential issue is that more casual gamers will want to do other things with their time post-pandemic. In this way, Frontier is no different from other lockdown winners such as Bloomsbury Publishing and musical instrument seller Gear4music. This is inevitable to some degree but its impact should not be discounted.

Another potential drawback is that earnings at any developer can fluctuate from year to year. This is usually due to the irregular release of games. Even if release dates were consistent, there’s a chance that a particular game won’t be popular. Moreover, a competitor could release something that generates higher interest. In this way, gaming is no different from the music or movie industries.

Even nailed-on winners can suffer teething issues. Frontier experienced this itself in the last year following the release of a bug-laden Elite Dangerous: Odyssey. Although things now seem to be fixed, the episode certainly did its reputation with gamers no favours. It might also explain why this growth stock has been quite volatile in recent months.

Considering these potential headwinds, Frontier’s forward P/E of 38 feels punchy, to say the least. Then again, I wouldn’t be surprised if a deep-pocketed suitor submitted a generous bid for the whole company at some point anyway. That’s exactly what happened to one of FDEV’s highly-rated peers earlier this year.

Cash rich

Potential obstacles aside, I remain positive about this UK growth stock. Backed with over £42m in net cash on the balance sheet, I reckon this is a cautious buy for my own portfolio. 

The post 1 UK growth stock I’d buy following today’s record results! appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The video game industry is seeing a very predictable boom in recent times. The pandemic-fuelled boom has pushed gaming stock to new heights. A recent report by Accenture valued the gaming sector in excess of $300bn. In the wake of this surge, some UK gaming companies are shining through.

Frontier Developments (LSE: FDEV) is one UK gaming stock I am looking to add to my long-term portfolio to capitalise on the industry boom. Here is why I’m expecting huge returns from the game developer over the next decade.

Financials

Frontier Developments shares have risen 18.7% in the last month and 29.3% in the last 12 months. Despite some turbulence in the last year, I expect steady growth for the foreseeable future.

Total revenue in 2020 was £76.1m (2019: £89.7m). This is because the company has been gearing up for big-name releases in 2022. Most 2020-21 releases have been updates for existing games.

The company has maintained an operating profit margin of 22% despite the lower revenue. Also, cash balances have increased to £45.8m in 2020 (2019: £35.3m). To me, this shows how the company is well placed to undertake R&D tasks and work on conceptualisation and development of new releases.

This brings me to the host of big-name releases Frontier has planned for 2022. The developer has secured the license to release Formula 1 management games from 2022 onwards. This is a huge gaming genre and could prove very profitable. Real-time strategy game Warhammer: Age of Sigmar also looks very promising as it allows for in-game purchases and paid future content.

The company is targeting five to six releases per year from 2023 onwards, propelled by the success of third-party publishing label, Frontier Foundry. The company expects revenue in 2023 to be £160m to £180m which is twice the current revenue figures. This leads me to believe that the UK gaming stock is set for a surge in the next five years.

Attractive business model

One important factor I look for in the financial data of gaming companies is how they generate their revenue. The gaming industry is built on recurring, in-game transactions and paid downloadable content (PDLCs). This strategy helps games remain popular and profitable for several years after the initial release. 

Older releases like Elite Dangerous, Planet Coaster, and Jurassic World Evolution generated 60% of the revenue in 2020 which is evidence that the Frontier’s launch and nurture strategy is the right way forward for the company.

Concerns

Though I am very optimistic about the growth of the gaming industry, picking a winner among the many studios is no easy task. Frontier’s financials and business model look strong but success depends on the trajectory of the gaming industry as a whole, which is ever-changing. 

Morphing audience opinions determine demand and success in the industry. Gaming enthusiasts have seen several promising releases buried because of one bad review or the launch of other popular titles.

In my opinion, Frontier Developments is a defensive game developer. They opt to generate revenue through intelligent licensing and PDLCs. Revenue from this could drive experimentation in the future too. The company is on my list of shares I would hold for a decade and I remain confident that this UK gaming stock could generate incredible shareholder returns.

The post This gaming stock is up 18% in 1 month. Should I buy now? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Record sales!

According to Frontier, strong sales of games and downloadable content in what remained of the previous financial year (to 31 May) has helped bring revenue to roughly £91m. This is impressive for two reasons. First, it’s a record figure. Second, the company has managed this feat without any new franchise announcements. 

It gets even better for those invested. Today, CEO David Braben said Frontier plans to grow sales over the next financial year “by 50% above the record revenue just achieved.” This may sound fanciful. However, based on recent news, I think this target might actually be achieved. 

New games announced

Yesterday, Frontier announced it was working on a sequel to its immensely popular 2018 game, Jurassic World Evolution. The dinosaur park management simulation is currently scheduled for release this year. Featuring the voices of actors from the related Hollywood movies, the game will be available on all major platforms.

But Frontier’s line-up for FY22 doesn’t end there. Having been launched on PC, the mid-cap will also bring its space simulation game Elite Dangerous: Odyssey to Playstation and Xbox consoles also this year. On top of this, “at least three new titles” from partner studios will be released via the firm’s publishing label Frontier Foundry. These include Warhammer: Chaos Gate – Daemonhunters, based on the franchise owned by Games Workshop.

Naturally, all this should do no harm to the UK growth stock’s top line. Revenue projections for FY23 now range £130m-£150m. This rises again to £160m-£180m, based on additional titles hitting the shelves.

Not all rosy

Despite this impressive schedule, today’s statement also served as a reminder that Frontier isn’t immune to setbacks. The need for staff to work from home over the last year delayed the release of the aforementioned Elite Dangerous: Odyssey. Unfortunately, this isn’t an isolated case. The release of the F1 management game had now been put back to after 1 June 2022.

There are other potential headaches. Games encounter problems even after they’ve been let loose. Back in May, the company had to spend 36 hours fixing a fault on its latest title that prevented some players from getting their gaming fix. At such a pivotal point in a game’s lifecycle, that’s clearly not ideal.

Factor in ongoing competition and an already-rich valuation and it’s perhaps no surprise that some investors were banking profit today. Despite sales and news on a highly-anticipated title, Frontier’s share price is down nearly 8%, as I type. 

Bottom line

Personally, I see this as an opportunity for me to climb on board. Gaming is already worth more than the music and movie sectors combined and I can’t see this popularity flagging in the years ahead. Indeed, along with automation, clean energy and electric vehicles, I suspect this sector will prove one of the key investing megatrends over the next decade.

As such, I’d be comfortable taking a stake in this UK growth stock now. Should the reversal in the share price continue, I’ll back up the truck.

The post 1 UK growth stock to buy now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Games Workshop. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The latest bid is for gaming developer Codemasters. It has received an offer from US titan Electronic Arts. If accepted, holders will receive 604p per share. That’s a big improvement on the 485p recently offered by rival Take-Two. The fact that Codemasters’ price is already at 654p, however, suggests a counter-bid may be forthcoming!

This has made me wonder which UK shares might be next to receive bids. Here are three that spring to mind. But I’d never buy a share just in the hope of its being bought. These are all shares I think have strong appeal even without a takeover boost.

Frontier Developments

Sticking with gaming, Cambridge-based Frontier Developments (LSE: FDEV) could also be on larger players’ shopping lists. It’s the brains behind titles including Planet Zoo and Jurassic World: Evolution. 

But Frontier wouldn’t be sold for peanuts. Thanks to the popularity of gaming during lockdowns, the shares have soared 155% year-to-date. This gives the company a valuation of £1.2bn!

If the battle for Codemasters tells us anything, however, it’s that overseas gaming giants will pay up to steal a march on competitors. Perhaps Chinese internet giant Tencent may wish to make a bid. It does already own almost 9% of Frontier. 

Regardless of whether this happens, I wouldn’t be surprised if there’s further consolidation in the gaming industry in 2021. With eSports looking set to be one of the investing themes of the next decade, it’s surely only a matter of time before other UK shares get taken out. 

Avon Rubber

Another firm that could find itself an opportunistic bid target before long is body-armour builder Avon Rubber (LSE: AVON). It’s a lot cheaper now than it was at the beginning of last week.

As fellow Fool Royston Wild covered in detail, Avon’s share price tumbled by 14% last Thursday on news that product approval relating to two contracts had been delayed. A protest had also been made relating to another contract. 

As a one-time holder of the stock, I’d be sorry to see a firm like Avon acquired by an overseas bidder. Nevertheless, I can see the appeal. Here’s a high-quality firm in a niche market with bulletproof finances.

Regardless of takeover speculation on my part, I may need to seriously consider welcoming Avon back to my portfolio if it drops much further. The share price fell another 7% on Friday and now trades at just two-thirds of the valuation it had at the beginning of December.

ITV

No takeover talk is complete without mentioning FTSE 250 member ITV (LSE: ITV). The Love Island producer has had a target on its back since Sky was bought in 2018.

The attractions of ITV aren’t hard to fathom. In addition to its various channels, the broadcaster has its very successful Studios division. It’s also entered the streaming market with its BritBox offering as part of its digital transformation.

If a potential suitor wants a cracking deal, they need to show their hand soon. Should advertising revenue pick up in 2021 with dividends reinstated, ITV could be on its way back to the FTSE 100. The shares are already up 50% since early November!

If a deal happens, my money’s on telecoms company Liberty Global. It owns 10% of ITV already.

The post Takeover targets? I think these could be the best UK shares to buy now! appeared first on The Twelfth Magpie.

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Paul Summers owns shares of ITV. The Motley Fool UK has recommended Avon Rubber, Frontier Developments, and ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A hidden growth opportunity in the gaming sector?

Keywords Studios (LSE:KWS) is a service provider for the video games industry. With multiple studios in its portfolio, the tech stock offers a wide range of services – including art & marketing, game development, audio, quality assurance, and localisation testing.

Today it serves 23 of the top 25 game developers across 60 countries around the world. This includes World of Warcraft developer Activision Blizzard, and Halo creator Microsoft.

Developing a video game today is an expensive process. If a project fails to meet expectations it can have serious financial consequences for studios. In order to minimise risk, most studios only retain a small team of permanent staff. The rest of the talent is provided by companies like Keywords Studios.

Recently, Keywords made two announcements that have re-affirmed my belief that the firm is on the right path.

This tech stock is beating expectations

The first was a quick trading update. Full-year revenue is expected to be in line with company guidance at €367m – a 12.5% increase on last year. Furthermore, the adjusted pre-tax profit is coming in 12% higher than expected at €52m.

Interestingly, the significant increase in pre-tax profit is primarily from improved operating margins as a result of a work-from-home policy. The reduced fixed costs may result in the policy remaining in place in some form even after the pandemic. If so, these margin improvements could remain as well.

Both figures continue to show that despite the disruptions from the Covid-19 pandemic, the firm has continued to thrive. With the next generation of consoles already sold out, it’s clear that the popularity of gaming isn’t declining. This suggests there’s an ever-increasing capacity for growth.

The studio is expanding!

Speaking of growth, the tech stock continued to execute its acquisition-based growth strategy. Keywords just added g-Net Media, an American marketing service provider, to its portfolio for $32m.

Founded in 2001, g-Net has been serving top entertainment companies – such as Netflix and Amazon Prime – as well as leading video game publishers. Both Activision Blizzard and Microsoft are among these, thus furthering the existing relationship these studios have with Keywords.

But, it’s important to remember that acquisitions always carry risk. g-Net, while well known within the industry, is still relatively small, with revenues of $16.3m for 2019. It’s good to see management acknowledge this and included specific terms in the buyout agreement. So far, only $18m has been paid using cash and shares. The remaining $14m is dependent on the studio meeting performance milestones.

The bottom line for this tech stock

The tech stock has yet to make any catastrophic errors in its acquisitions, and seeing performance-based terms in their buyout agreements lowers the risks involved. I believe this prudent approach to business, combined with the delivery of high-quality services, means Keywords Studios is on the path to exceptional growth for many years to come.

The post 1 tech stock I’d buy and hold forever appeared first on The Twelfth Magpie.

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Zaven Boyrazian owns shares in Keywords Studios. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

What is Gamesys and what explains its recent gains?

Under-the-radar growth stock

Gamesys is an online operator of casino and bingo brands. You may recognise it by its previous guise: Jackpotjoy. Last year, the latter acquired the former, rebranded itself as Gamesys Group and became a member of the FTSE 250. 

Among Gamesys’ key qualities, at least according to the company, are its strong cash generation, proprietary technology, and geographic spread. Brands operating under the parent company include Rainbow Riches Casino, Monopoly Casino and, as you might expect, Jackpotjoy.  

Based on recent trading, these aren’t empty claims.

Strong results

Earlier this month, Gamesys reported a very encouraging set of interim results to the market. These included a 101% jump in reported gaming revenue (to £340m), thanks to a strong performance in the UK and “exceptional growth” in Asia.

In line with its strategy, revenues in the latter jumped 92% year-on-year. This, Gamesys explained, was down to attracting more customers, the launch of its online gaming ‘stalwart’ InterCasino brand’ and ongoing momentum in Japan.

Although revenues in Europe fell, they rose 2% at the company’s Rest of World operations, with 37% growth achieved in the US. All told, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) soared 75%. 

With numbers such as these, it’s perhaps no surprise Gamesys has managed to reduce its debt burden. A maiden interim cash return of 12p per share was also announced.

It now plans to bring in a progressive dividend policy “to align the Group with its listed peers” while keeping some money on the side for potential growth-enhancing acquisitions.

A 33%/67% split should mean a combined total dividend of 36p per share for the current year. That’s a pretty attractive yield of 3.1% based on Gamesys’s share price as I type. Remember – this is primarily a growth stock.

Still cheap

Despite all this good news, Gamesys’ shares still trade at less than 9 times forecast FY20 earnings.

That looks like a cheap price to pay so long as the company really is able to continue reducing its debt burden (a remnant from when it was owned by private equity). It certainly looks cheap compared to peers such as Mecca-owner Rank which trades on a P/E of almost 17 for FY21.

Positively, Gamesys stated that trading had continued to be buoyant into Q3. As a result, management now predicts full-year gaming revenue and adjusted earnings will come in “comfortably ahead” of previous expectations.

Clearly, some of this news is now reflected in the share price. Nevertheless, the still-low valuation suggests more gains could be on the cards. 

Best of all, the company looks like a good defensive pick in a highly uncertain market climate. There is, after all, a chance the coronavirus could return with a vengeance later in 2020 and people are again asked to stay indoors. In such a scenario, I struggle to see why the FTSE 250 member won’t continue raking in the cash. 

Gamesys isn’t risk-free. Nonetheless, if you’re looking for growth stock at a very reasonable price, the shares certainly warrant consideration.

The post This secret FTSE 250 growth stock just hit an all-time high. And it’s still cheap to buy! appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

eSports: here to stay

You probably don’t need me to tell you that the lockdowns in 2020 have been hugely beneficial to raising the profile of gaming and eSports. With nowhere to go, huge swathes of people (re)discovered their inner gamer to pass the time and make new, digital contacts. If they weren’t playing themselves, they were watching other people do so via streaming service Twitch.

This rapid acceptance and adoption should mean the gaming-related boom keeps going even when the pandemic is over. It’s already been estimated that the global eSports audience will hit 495 million people in 2020.

Other developments that highlight eSports’ growing profile include the involvement of bookmakers. With no opportunities for punters to gamble on ‘traditional’ sports, firms such as William Hill have been taking bets on the outcomes of gaming matches.

Another sign of the times was the launch of talent development company Guild Esports in June. Co-owned by David Beckham, its goal is to find and nurture the next generation of professional players. While certainly not guaranteed to succeed, Beckham joins a growing list of sports stars such as Michael Jordan and Mike Tyson making investments in the video gaming industry. 

Here’s how you can join them.

How to invest

The most direct route into gaming as an investor is to buy a developer. UK-listed candidates include Codemasters, Frontier Developments and Team 17. Another option is ‘picks and shovels’ company Keywords Studios. It specialises in providing a variety of services to the video games industry. 

All of the above appear to be decent businesses with solid futures. The problem, however, is that most trade on frothy valuations due to the recent post-crash buying frenzy seen in the market.

Keywords-excluded, owning shares in a single, gaming-related company can also be risky. Much like a movie studio, a lot of money may rest on a new title living up to the hype. Should it not, some holders won’t hesitate to dump their stock.

Personally, I’m taking a different route.

My preferred pick

The VanEck Vectors Video Gaming and eSports UCITS ETF launched just over one year ago. Tracking the MVIS Global Video Gaming and eSports Index, it gives exposure to 25 companies. Importantly, all of these generate more than 50% of their revenue from the industry. Portfolio holdings include giants such as Nintendo and Tencent. Developer Activision Blizzard also features, as does Electronic Arts.

Based on performance so far, the 0.55% ongoing fee certainly doesn’t seem excessive. From inception (24 June 2019) to the end of July 2020, the fund’s net asset value climbed an astonishing 63%!

Buyer beware

Of course, no investment is a nailed-on home run. There will be setbacks along the way, perhaps in the form of increased regulation. The threat posed by cybercriminals shouldn’t be easily dismissed either. 

With a young, global, increasingly-affluent audience and new consoles (Playstation 5 and Xbox Series X) coming soon, however, the outlook for this coronavirus-proof industry looks rosy. In fact, I think gaming/esports could prove to be one of the best investment themes of the decade.

The post I think eSports could make investors filthy rich. Here’s how I’m playing it appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in VanEck Vectors Video Gaming and eSports UCITS ETF. The Motley Fool UK owns shares of and has recommended Activision Blizzard. The Motley Fool UK has recommended Frontier Developments and recommends the following options: long January 2022 $75 calls on Activision Blizzard and short January 2022 $75 puts on Activision Blizzard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m going to cover three purchases I’ve recently made and why. In spite of the likely economic gloom ahead of us, I think all could prove great additions, over time.

ISA having some of that!

The first stock has been on my watchlist forever. Irn-Bru owner AG Barr (LSE: BAG). To be sure, Barr won’t escape the economic impact of the coronavirus lockdown. With pubs, bars and cafes closed, it’s been dependent on supermarket sales to keep going. 

This, however, should prove a short-term blip. The company is sound and has a great portfolio of brands, including Funkin cocktail mixers and Rubicon to support sales of its legendary orange beverage. Returns on capital employed are reassuringly decent and the firm’s balance sheet also looks solid. 

Barr’s stock rarely goes on sale. Having more than halved in value over the last year, however, it’s changing hands for less than its average valuation over the last five years (18 vs 21 times forecast earnings).

No investment is without risk, and current predictions could still prove optimistic. Nevertheless, I suspect the margin of safety is such that now is the time to at least start adding it to my ISA. 

Down but not out

While AG Barr is a new holding, I’ve also been adding to my existing stake in high street baker and FTSE 250 member Greggs (LSE: GRG).

Some may think this a strange choice, particularly if a second coronavirus wave puts an end to the lifting of lockdown restrictions. There’s also a possibility revenue and profits don’t recover as swiftly as first thought, due to the prolongation of social distancing.

But let’s get real. Greggs surely has a better chance of coming out of the coronavirus storm than most on the high street. A firm selling low-ticket baked treats is unlikely to be impacted as much as those selling discretionary items. A new TV or phone purchase can be postponed. I’m not convinced people will apply the same rationale to a steak bake. Now factor in Greggs’ strong brand, history of savvy marketing, and excellent free cash flow.

This is why I expect to continue holding this company in my ISA for many years to come.  

Gaming for growth

A final ISA purchase I’ve made is actually a fund. Notwithstanding this, I do think it could generate returns to rival the stocks mentioned above. 

The VanEck Vectors Video Gaming and eSports UCITS ETF tracks the performance of 25 companies. All derive a large proportion of their revenue from this hot sector. As I’m sure you know, gaming has been immensely popular over the lockdown period.

Although small, the fund is arguably a safer option than buying a single developer. The latter’s fortunes can be highly dependent on only a few titles at any one time. With this ETF, an investor can mitigate that hit-and-miss risk.

At the end of April, the VanEck fund had returned 27.5% since its inception last June. It is, of course, unlikely to deliver this consistently. Nevertheless, the industry’s strong growth prospects make me sufficiently bullish to add it to my ISA. The fund has a total expense ratio of 0.55%.

The post Forget the recession. Look at what I’ve been buying for my Stocks and Shares ISA! appeared first on The Twelfth Magpie.

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Paul Summers owns shares of AG Barr, Greggs and VanEck Vectors Video Gaming and eSports UCITS ETF. The Motley Fool UK has recommended AG Barr. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Between 2016 and 2018, shares in the Dublin-base business almost ten-bagged in value — further evidence that finding promising stocks at the smaller end of the market spectrum can seriously grow your wealth over a short period of time. 

Since last September, however, the value of the company has dropped significantly. Despite a small bounce in recent weeks, the share price is still 35% down from its peak. 

As far as I can tell, most of this fall can be attributed to jittery investors jettisoning highly-rated growth stocks from their portfolios and little to do with how the company is performing.

Indeed, today’s full-year results revealed that Keywords continues to do very well. 

Positive outlook

Revenue jumped 66% to a little under €251m in 2018 as the company increased its market share and added new services such as marketing, music management, and predictive analytics. Adjusted pre-tax profit rose by almost the same percentage to €37.9m.

Further good news included a rise in return on capital employed (to a very solid 19.4%) and a 10% increase to the total dividend (to 1.61p).

The outlook was equally positive. 

Keywords stated that it had seen an “encouraging” start to 2019 (with trading in Q1 in line with expectations) and that it has achieved “significant new business gains” which included its first contract wins relating to game streaming.  

As far as the latter is concerned, CEO Andrew Day commented that “the likely increase in demand for content driven by the arrival of games subscription and streaming services from new entrants such as Apple and Google” bodes very well for the company.

Whether now is the right time to buy the stock is, however, less clear.

For one thing, the fairly apathetic reaction to today’s impressive figures implies that recent performance was already priced in. Before markets opened this morning, Keywords shares traded on a high valuation of 28 times forecast earnings.

It’s also worth noting that interest from short sellers has increased.

True, the 3.5% of stock currently being shorted isn’t as much as other growth-focused companies like IQE (7.9%), but it does appear that some are beginning to question whether the acquisition-led strategy the company pursues — and which shows no sign of slowing — could come back to haunt it later down the line.  

Driving profits higher

Of course, there are other options out there for investors looking to tap into the gaming industry as a way to increase their capital.

Developer and publisher Codemasters (LSE: CDM) released a cracking update last week. As a result of strong trading in H2, the small-cap is now expected to report full-year revenues of around £71m.

Even more encouragingly, adjusted earnings are now likely to be somewhere in the region of £18.5m — more than analysts were expecting — thanks in part to the release of driving game DiRT Rally 2.0 in February.

While Keywords offers more earnings diversification (in the sense that its success isn’t reliant on the popularity of a single game it works on), shares in Codemasters also trade on a lower valuation of 18 times forecast earnings.

Assuming the latter is able to grow profits as expected, one might reasonably argue that it represents a better buy at the current time. 

The post This top growth share is really performing. But is all the good news priced in? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pixel problems

Shares in video game vendor Game Digital (LSE: GMD) have received an absolute pasting in Wednesday morning trading after reporting yet another poor sales performance. Investors have subsequently sent shares in the retailer rattling 39% lower from Tuesday’s close and I certainly wouldn’t advise bargain hunters to pile in at the present time.

The Basingstoke business advised that “trading conditions in the UK video games market have been challenging” during the 21 weeks to 19 December. Sales of titles for older formats have nosedived, Game Digital said, while software demand has remained sluggish for new consoles PlayStation 4 and Xbox One.

The result? Game Digital saw total revenues slipping 6.7% during the period to £466.8m, prompting the company to cut its adjusted EBITDA target for August-January to £30m. To put this in perspective, earnings clocked in at £43m during the corresponding six months of last year.

Game Digital is now dealing at 120p per share, a whopping discount to the 200p price at which its shares relaunched 18 months ago.

The retailer simply hasn’t been able to grab any momentum since the dark days of 2012 when it was forced into administration. With competitive pressures becoming ever-more intense and gamers still switching to their smartphones and tablets to get their gaming fix, I don’t expect Game Digital to experience a sudden resurgence in the near future.

Building a head of steam

Housebuilding giant Persimmon (LSE: PSN) has had fresh reason for cheer in recent days following the release of yet more bullish industry data. But investors have failed to jump on the wagon in midweek trading and the company was recently dealing 0.2% lower from Tuesday’s close.

This time around it was the Royal Institute of Chartered Surveyors (RICS) blessing the housing sector with good news. The body predicts that average home prices will gallop a further 6% in 2016 to £287,000, and this figure could even reach as high as 8% in the commuter belt of East Anglia.

Simon Rubinsohn, chief economist at RICS, commented that “[the] lack of stock will continue to be the principal driver of this trend but the likely persistence of cheap money will compound it for the time being.”

Indeed, the chronic housing market crunch is likely to intensify in 2016 as an improving UK economy boosts homebuyers’ spending power, while the government’s ‘Help To Buy’ scheme, combined with increasingly-favourable lending conditions, is also likely to keep driving demand through the roof.

Against this backcloth, Persimmon is expected to follow a 28% earnings rise in 2015 with a further 10% bump in 2016, resulting in a brilliant P/E rating of 11.3 times.

And with Persimmon also expected to lift a prospective dividend of 100.7p per share for this year to 105.1p in 2016, in turn pushing the yield to 5.4%, I believe the housebuilder is a brilliant pick at current prices.

The post Should You Buy Game Digital PLC & Persimmon plc On Wednesday? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.