SHARE WATCHT H E S M A L L C O M PA N Y

SHARE WATCHLast month this column ended by saying, “have a stop-loss and apply it ruthlessly.” Here’s why. The accumulating evidence is that there is more than a “buying panic amongst the least successful cohort of investors, and into the riskiest investments,” as stated last month. It is a rare, rip-roaring, investment mania. They never end well and are very dangerous for investors who are overcommitted.

So you have a dilemma. Even pre-virus it could be said that the UK market was at its cheapest level relative to the global index for at least 20 years. That is now even more the case, particularly amongst UK smaller and medium-sized companies more exposed to the domestic economy. But the context is what happens when the US-centred investment mania comes to a rude end, whatever might trigger that end. When the tech bubble popped, the Nasdaq went down 78% in less than two years. When the bitcoin mania turned sour in 2017, it fell 84% in one year.

The Chinese stock market craze of 2005-2007 had very similar characteristics to the US today - massive increases in new stockbroker accounts being opened by novices, people giving up work to trade, and many getting into debt to invest. The Shanghai Composite then fell 73% in one year, and is still more than 50% below the peak, 13 years later. There are dozens of such examples, and the scale of falls is always similar at the epicentre, 70-90%.

Just before the virus hit, there was an extraordinary surge in “Mom and Pop” investing in the US. Post-virus, bored novice investors, who soon got over baking banana loaf, also decided to pile in. The RobinHood trading app is at the centre of this, with 10 million cus-tomers with an average age of 31 i.e. they have never experienced a bear market, nor a major recession.

There has been an orgy of buying through such apps, buying the most speculative garbage imaginable. The cheerleader for these RobinHoodies is a bored sports commentator turned day trader, apparently with less than 8 weeks experience, who recently announced to his 1.5 million Twitter followers: “Stocks only go up, this is the easiest game I’ve been part of.”

One bankrupt company, Hertz, decided to take advantage of this madness by raising $1 billion through a share offering, the documents for which stated clearly that you were highly likely to lose all of your money. Think of it this way - RobinHood taking from the poor and giving to the rich. Can you guess how this ends…? Take care.

Gaming Realms Licencing revenue +80% in April and May

Codemasters

Scope for PE to expand

Joules +40% surge in online sales

XLMedia

Possible buyer for Finnish casino assets

Eckoh 10 clients in Fortune 250 list

Anexo

Raises money to target VW emissions cases

Ergomed

Forecasts lifted again - by 5%

Zotefoams New contract worth possibly 10% to sales

Boohoo

Gain since 42.5p tip now 871%

COVID-19 and retail & leisure sector Starting to resume

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• Next issue on Saturday 1 August

In this issueMARKET COMMENT

July 2020

Codemasters is a UK-based video games developer, which over the past 30 years has specialised in producing high-quality AAA racing/driving games. I briefly touched on the shares last month when I mentioned its estab-lished track record with three key car racing franchises - DiRT and GRID, which are based on fully owned intellectual property, as well as the Formula 1 racing games produced under an exclusive licence. Since writing last month, the company has picked up another global racing license - a 5 year exclusive deal for World Rally Championship games (2023-27 seasons).

Anyone who looks at the sports racing category of videogames might immediately think of Mario Kart or Gran Turismo, which have respectively been written to play on Nintendo and Playstation only, but Codemasters produces games across multiple platforms (Playstation4, Xbox, PC, mobile) - and the company’s F1 and DiRT Rally games routinely take the top places on review sites.

Coronavirus tailwind - margin expansion I think Codemasters is a business that is set to pleasantly surprise. First, as I intimated last month, despite a rapid transition to digital retail, boxed games (lower margin) still make up a large share of its game sales.

Consoles (Xbox, PS4) have historically had a low digital penetration as most people still tended to buy a physical product but lockdown has accelerated the shift to digital and more and more people are getting used to the idea of

Always remember the risks in buying shares. With small companies there is an above average degree of risk compared to buying blue chips. Please be aware that we have not assessed the suitability of any of these investments for you. The newsletter simply states a personal view and diarises the editor’s investment decisions. You should therefore consider this publication as information only and not as a recommen-dation to engage in investment activity. Please speak to your stockbroker or other qualified individual to ascertain whether any of these companies mentioned would form useful additions to your own portfolios. Past perfor-mance is no indication of future success.

CODEMASTERS (CDM)

Sector : AIM, Leisure Goods

Latest Price : 331p

High/Low : 355p - 192.5p

Market Cap. : £500m

Shares in issue: 151m

end3/2020 EPS/PER 11.6p 28.5

end3/2021 EPS/PER est 16.5p 20.1

end3/2022 EPS/PER est 15.8p 21.0

Telephone 01926 816000

Registrars 08716 640 300

CALENDAR Int/Fins/AGM NOV/JUN/JUL

downloading games from an online store instead (eg. Sony’s PlayStation Network, Microsoft's Xbox Live and the go-to platform for PCs, which is STEAM). With more people confined at home, these download platforms have been reporting record surges in usage.

A few years ago, when all games tended to be sold on physical media, game publishers would spend millions developing a game but lit-erally had just a few weeks to monetise it before they would lose out to piracy and second-hand game sales. You also had to distribute physical discs to retail stores, which required money for inventory, so it just wasn’t feasible for a small company to self publish.

But now companies like Codemasters are able to go direct to the consumer by selling over the internet and a digital game sale requires no upfront inventory investment and leads to higher margins for publishers. The economics have been transformed because selling its games on third party online stores, such as Steam, allows Codemasters to retain 70% of the post-tax retail selling price of the game. Codemasters reports digital revenues after the pay-aways to Steam, PS4, Xbox etc (therefore at 100% gross margin). Furthermore, digital games have a longer shelf life versus retail distribution as retailers no longer have to make way on the shelf for new releases.

For a business that reported a £18.2m ebitda on sales of £76m in the year to 31 March 2020, the shift to digital is set to have a transforming implication for margins. As an illustration of the potential, broker Panmure Gordon estimates that other things being equal, if Codemasters had been able to shift 90% of its sales to digital overnight (from 67% presently), profits could climb by 80%.

COVID-19 has also provided another useful tailwind by widening the audience. Normally, motorsport race weekends boost sales. This year, races were postponed due to COVID-19 and some investors felt it might reduce interest in racing games but just the opposite has happened as live races were replaced with e-sports - com-petitive gaming streamed to a live audience - including hosting the official virtual Grand Prix with drivers from several F1 teams competing against gamers during lockdown. The Virtual F1 series reached an estimated 30m audience made up of a broad demographic - 30x more than the number of people who buy the video game each year, helping to boost game sales. History Codemasters was established in 1986 and started out writing racing games but moved into an unsuccessful foray in other segments such as action, adventure, role playing and puzzle games. The problem was that this multi-genre portfolio covered a number of markedly different development and publishing models, which combined with the cost of local distribution offices across various geographies (North America, Japan, Europe) saw it lose a heap of

money. Even now Codemasters has c. £120m of retained tax losses brought forward (as of H1 20) to offset in future years.

In April 2010, Reliance Big Entertainment, the gaming and entertainment branch of Indian conglomerate Reliance Anil Dhirubhai Ambani, took a 50% stake, which it progressively increased to 99% by 2016. By then, current chief executive, Frank Sagnier, had been in place for two years and success with his turnaround strategy was already evident.

After a thorough business review, Sagnier concluded that it was best to return the company’s focus to premium quality racing games, which had represented its most prof-itable franchises. All non-racing games were then discontinued.

As it is, Codemasters has since grown to c.750 employees (>500 developers), which makes it the largest independent racing-focused gaming studio in the world. In June 2018, based on this success, Codemasters listed its shares on AIM, raising £15m new money. Reliance sold its remaining shares at the end of 2018. Looking like a multi stage rocket During its turnaround phase, Codemasters’ twin focus has been just two games - Formula 1 and DiRT - which accounted for the bulk of its sales. New versions of DiRT have been coming roughly every two years and F1 each year (new versions to come in October and July this year, respectively). GRID relaunched in 2019 (after a five year gap - last game 2014) for the current video-game generation so sales from this game have been mostly from the back catalogue.

However, the exciting thing is that other new games are now moving off the drawing board. In particular, Codemasters acquired Slightly Mad Studios (SMS) for £23m in 2019. This brought in two games about to launch including one based on Universal Studios’ Fast & Furious film franchise (launch 7 August 2020) and Project Cars (September). In the short run, SMS is lossmaking (£0.9m loss in

FY20) but the new games could transform it. Together, these games take Codemasters up

to five franchises - vs two just after IPO. Under development is the just-announced game based on the FIA World Rally Championship franchise and also a mobile game developed via a jv with Chinese giant gaming co Netease (by a team who netted US$1bn sales from their previous game). The latter will soft launch by the end of this fiscal year but is not included in forecasts.

Specialised gaming engine One of the key ‘props’ to Codemasters' high-end games strategy is its proprietary technology platform, which has been in development for a decade. The EGO Engine is an internally created racing-focused software platform and toolkit that the company uses to launch games simulta-neously across PC, console and mobile.

I confess I am not a natural game player but I still appreciate that reproducing vehicles, tracks and conditions to reflect the real world is really important. To this end, Codemasters spends significant development time to ensure that the sounds, light, roads, pit lanes, crowds, weather, scenery etc. are as authentic as possible.

Most games are developed internally at its studios based in Southam, Birmingham, Cheshire and London. A Kuala Lumpur studio also provides a site with lower labour cost.

EGO is solely for use by these in-house development teams (it is not licenced elsewhere) and gives Codemasters the ability to reproduce extremely accurate driving models of everything from contemporary F1 cars to historic rally cars with realistic controls for steering your car around tracks and roads - a process that requires advanced licensor approval car by car!

As I am learning, game designers even record and reproduce exhaust noises for all car engines as well as environmental, surface type, damage and incidental noises which, once combined, create the authentic racing experi-ence. And by all accounts the crashes are just as

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realistic too so when bodywork pieces fall off during severe crashes, handling is hindered. Alongside that, its TrackGen toolkit helps create landscapes and rally stages, allowing designers to create an infinite number of rally stages fast and efficiently.

Such features add complexity to a game's code and EGO has to deal with millions of cal-culations every second in order to monitor inter-actions between players, opponents, cars and track. The level of graphics, physics and racing dynamics now required have become such a massive barrier to entry that it would take years for a new developer to adapt their existing engine or build a new one. Developing a racing game from scratch would just take too long and management estimate that by repurposing much of the code, EGO can help it save well over 30% of the time and cost of developing and launching a new game. This is why F1 and WRC have also turned to it. Large lifetime unit sales So what are the games? DiRT was launched in 1998 and is Codemasters’ oldest fully-owned franchise. It alternates between the offroad version of DiRT and DiRT Rally, which involves competing in timed stage events on tarmac and off-road terrain in varying weather conditions. DiRT 4 incorporated real-world off-road cars (Ford Fiesta R5, Audi Sport Quattro S1), as well as vintage models from the 80s and 90s. In total, the franchise has generated close to £300m in sales and has sold over 20m units. DiRT 5 will launch in October for the new generation consoles.

The second key franchise is GRID (track racing), which was first released in 1999. It is a street and circuit racing game featuring real-life cars and an extensive track library. The last version included multiple formats – endurance, open wheel (more like F1), street racing through real world cities and touring. Codemasters released nine titles in the series between 1999 and 2014, which have generated an estimated £150m in revenue and sold c.10m units.

In 2018, the company launched ONRUSH, which is a fast paced arcade style racing game. It was a gatecrasher. Codemasters’ other franchises were based on reproducing vehicles, tracks and conditions. ONRUSH broke away from this real world and threw in tricks and treats into the racing. It had a poor reception at launch (shortly after IPO) but doubts investors had quickly faded. Fortunately, Codemasters has a policy of capitalising all its spend and then writing off the capitalised costs within 12 months of the launch (quicker than most of its peer group where amor-tisation ranges from 2-5 years) so there are no skeletons remaining.

Extension of the Formula 1 licence to 2025 While these three owned franchises are based on fully owned intellectual property, what has put

Codemasters squarely on the map has been the F1 game licensed from Liberty Media. The 10 F1 titles delivered over eight years have aimed to be an exact simulation of the real world tournament, including new rules, drivers, technology, circuits etc. The agreement started in 2008 but was renewed in 2019 and Codemasters has a commitment to produce one F1 game annually until 2025.

F1 2019 has seen the biggest year-on-year growth, up c.120% on F1 2015. The latest F1 2020 game launches on 10 July has a 'My Team' function to allow players to manage, develop and race as an 11th team alongside the 10 real world teams as well as split screen duels.

The game license structure includes an annual advance guarantee payment to Liberty, plus a recoupable royalty fee on game revenues. Over the course of the year, royalties are offset against the initial guarantee and payments are made only after the accumulated annual royalty surpasses the advance payment. The upfront payment (US$6m in 2019) increases by 12% annually between F1 2019 and F1 2025 games but in return Codemasters is now getting track-side advertising at the Grand Prix and a presence on F1's digital channels. There is major medium-term potential in China as F1 rolls out there. Gaming as a service (GAAS) Even though the share price has risen strongly recently, the shares don’t really reflect its prospects and the fact that the reach of third party online stores for digital downloads has shifted massively during the lockdown. In future margins will improve as the shift to digital away from physical continues.

Digital also brings new ways of monetisa-tion through expansion packs and in-game micro purchases. In-game purchases include items (at price points typically between £1 and £20) ranging from the option to customise the colour of a car through to adding new game options (career modes, practice modes/circuits, new players/drivers and so on). Dirt Rally 2 has in fact been the first game to allow downloadable content and is already making a big impact.

There is also an exciting opportunity for a racing channel strategy. Codemasters set up RACENET in 2012. This is a 2.5m strong com-munity of players for all its games who use the service to track their progress on leader boards. For instance, they can monitor throttle, breaking and steering for those who were successful at a given corner in order to improve their own per-formance. It now paves the way for selling an ‘all-you-can-eat’ digital gaming subscription across the full range of titles for perhaps £6-£10 a month - much the same way as my young children consume the Disney Channel at £6 a month. Based on this plus the roster of new games that are set to launch and will add tens of millions to sales, Liberum forecasts sales up 34% to £101.5m, pretax profit up 44% to £27.1m and eps up 48% to 16.5p for the current-ly year. Net cash is also £24.8m or 16p a share and climbing. I am a buyer.

UPGS has said it now expects results to be ahead of market expectations and that the invoicing and delivery of the group’s order book has “progressed at a steady pace.” Total invoiced revenue for FY20 has increased to £97.2m since last month and there was an order book for the remainder of FY20 of £10.6m. Net bank debt is only £2.6m. Shore Capital has upgraded its forecast for the year to end July by £2.2m to £7.8m, for eps of 5.5p. Strong hold.

Since writing last month, Frontier has said it expects to beat even those recently upgraded expectations. It now expects to report revenue of c£76m for FY20 (the analyst range back in April was £65-£73m) and operating profit of >£16m (was £11m -13m range).

FY21 will benefit from Elite Dangerous: Odyssey, which is its major new paid-for update for Elite Dangerous and also the console release of Planet Coaster on the PlayStation and Xbox consoles. Results are due on 9 September. Strong hold / buy.

Ergomed has continued to sail majestically on through the COVID-19 crisis with last month’s AGM told that it saw a strong Q1 with “solid overall growth in revenue” whilst cash generation remained strong. Meanwhile, Q2 impacts from COVID-19 seem broadly positive. Ergomed continued to grow the order book and its staff successfully adapted to remote working conditions with the CRO site monitoring visits conducted virtually during lockdown and no employees were made redundant or furloughed. The PV division has also seen heightened activity levels and is benefiting from the recent acquisition of Ashfield.

In the light of the statement, Numis has upgraded its full year expectations by c.5% to £11.9m pretax profit for eps of 14.8p. The broker sets a target price of 525p. Buy.

CML’s full year results to 31 March showed revenues down 6% to £26.4m with pretax profit down to £1.37m (2019: £2.98m). Eps were down 43% to 9p.

Revenue was made up of £11.4m from Storage (down 11.3% year-on-year) and £14.9m from Communications (down 1.3% year-on-year) together with a £0.06m one month’s contribution from Plextek RFI, acquired in March.

Comms has seen some recovery. Speaking to chief executive Chris Gurry, in the public sector, the mission critical aspects have proved robust and were stronger than expected. CML supplies chips that cover customer functionality needs from the antenna through to the microprocessors. Divisionally, a flattish performance (-1.1% for the year overall recovering from the -4% that had been seen in H1).

Locally in China there is still considerable uncer-tainty over the economy and the US-China trade war, which has been impacting government spending on

UPDATES

Ergomed (ERGO) 420p Sector: AIM, Pharmaceuticals

UP Global Sourcing (UPGS) 67p Sector: Household Goods

Frontier Developments (FDEV) 1858p Sector: AIM, Leisure Goods

CML Microsystems (CML) 258p Sector: Technology Hardware & Equipment

Editorial shareholdings of companies covered in this issue: UP Global Sourcing, Ergomed, XLMedia, Revolution Bars, Superdry, Codemasters, Joules

work remotely and is fully operational, aided by online and telephone court hearings, which are allowing its caseloads to be settled remotely. Berenberg estimates Anexo’s current credit hire case backlog could generate £200m of cash inflows.

The new money is earmarked to continue to hire legal staff and to grow its fleet of vehicles for when better times resume. More interestingly, a new opportunity has been funding VW emissions cases. In early April, the High Court of Justice found that VW had subverted key air pollution tests by using special software to reduce emissions of nitrous oxides under test conditions. The High Court ruling applies not only to VW cars but also to those manu-factured by Audi, SEAT and Skoda. Bond Turner is now acting on behalf of 8,000 individuals to pursue a claim against VW in regards to this subversion, and if a claim or settlement is reached, it will be entitled to a percentage of the claim. Berenberg has suggested that a blue-sky scenario could see proceeds of almost £50m earned through the VW cases. I am due to speak to the company on 29 June when they report. Hold.

The shares jumped higher after Joules said it has seen e-commerce demand running higher than ever before - some 40% higher in Q4 (March to May) compared to the previous Q4 despite turning marketing spend off. The company also added that sales for the year ended in May were £191m, down 12%.

Since my last update, Joules has also completed a placing to raise £15m at 80p a share, leaving net cash at the end of FY20 at £4m and headroom of £53m on its bank facility against a cash burn running at £3.5m a month (according to Liberum).

On 15 June there were only 12 stores of the 128 open and interestingly the company points out that a large proportion of the estate has a lease renewal or determination within the next 18 months, which will allow it to lower rents or end lease commitments.

Interestingly, Joules is in the enviable position that 70% of clothing lines also tend to be “continuity inventory” - so it should be able to sell a lot of unsold 2020 stock next year rather than engaging in clearance activity. Like many fashion retailers it had ordered clothes from China when they perceived that COVID-19 would be a supply chain risk. In the case of Joules, it has 80% of its in-season stock in hand but it has worked with suppliers to reduce its Autumn/Winter 2020 and Spring/Summer 2021 inventory commitments. This will enable it to order the rest at a time when it has better visibility of con-ditions.

Liberum is also first out of the blocks with a forecast of £4.1m pretax profit/eps 2.9p this year and £8.6m/6.1p next. Speculative buy.

Whilst sports betting has been curtailed due to the dearth of sports events during lockdown, gamblers have been turning to other ways to get their fix - including casino games - which seems to have started a revival in the sector. So much so that XLMedia seems to have found a buyer for the majority of its Finnish-facing Casino assets (an unregulated

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market). A sale would leave XLMedia with a range of

publishing assets plus US$29m net cash (13p a share), which has possibly increased given the improved trading for casinos. Meanwhile, it seems to have seen the light and XLMedia now states it has “identified North America as a core target market” and sports betting and finance within it as having good opportunities. This is pleasing as it is not the January’s RNS poppycock about “enhancing its pub-lishing assets outside gaming, gambling, personal finance and sports betting and expanding footprint in areas such as North and Latin America and APAC.”

Interestingly, a note from Cenkos adds that the adverse downgrade in the Google ranking of a number of its online casino sites - which it deemed asset light and too similar - is about to reverse. The broker states Google is said to be reviewing its decision later this year. Perhaps positively. Price here is entirely driven by sentiment. Given its US opportunity, a re-rating could be fast and furious. GP3 has averaged down on its holding.

Eckoh supplies call centre systems. Chief executive Nik Philpot explains that activity started to go down as early as February as COVID-19 hit but even so results for the year to end March were in-line. Volumes have come back strongly in recent weeks (April to mid June) as home working call centre agents become a permanent feature of large contact centre operations, which will force a greater number of organisations to adopt a more rigorous approach to data and payment security. With high levels of recurring revenue and a record order book, the business seems fairly well placed.

As it was, for the year to end March, sales were up 16% to £33.2m, comprising UK sales +6% to £20.5m but with much faster growth in the US, which was +36% to £12.7m. Profit after tax was £3.1m for eps of 1.2p. Net cash is £11.6m, up £3.3m.

Guidance has been withdrawn but Eckoh has never looked stronger. Most of the growth is set to come from the US market where there are 14,000 call centres with >50 seats. Having been in the US for five years (but in the first two going nowhere fast), it now has the reference sites it needs with 10 clients from the Fortune 250 list. Its heritage business has been things like interactive voice response systems, which would enable routine enquiries, payments or other transac-tions to be processed without the caller having to speak to a customer services agent alongside which it has added webchat, SMS, email and social media engagement solutions but the key growth is coming from its CallGuard Remote system, which facilitates secure payments in remote working environments. These are both owned software alongside which it sells a third party front end solution (Coral), which allows all kinds of information to be displayed in a nice fashion in one place rather than having a lot of screens open.

Instead of a call centre asking a customer to read out their long credit card number, they can instead ask for them to enter it on their phone's keypad. When a caller then presses the number in using their touch keys, the signal generated passes through Eckoh’s

some local infrastructure projects, such as railway and power networks, says Gurry. As a whole, Asia is 50% and growth in the US and Europe has failed to offset the China shortfall. A month before the year end it also made a small infill acquisition of a Cambridge-based specialist design house, Plextek RFI (for £1.3m cash plus £0.6m shares), which added a team of engineers and brought in a services income stream for CML.

On the Storage side, the flash memory shortages that had impacted it last year abated. When flash memory became less available, there was reduced demand for the controller chips CML supplies, explains Gurry but the picture brightened with Storage sales of £6m in H2 20, so down 11.3% year-on-year (recovering from -23% in H1), representing increased order bookings and subsequent shipments for what he describes as “multi-year growth applica-tion areas” such as 4G/5G infrastructure SATA (inter-face standard) controllers.

The year saw record R&D investment of £8.5m to leave net cash at £8.5m. During the year, eight new products launched - including five within Comms comprising machine-to-machine and Industrial Internet of Things (IIoT) for use in satellite communications, wireless power telemetry networks and marine logistics, as well as associated demon-stration and development platforms.

Referring to outlook, Gurry says the current order book is strong but it is not yet clear as to whether this is any kind of sustainable trend adding that the week before, some easing of lockdown restrictions in China allowed customers to visit its operations based in Wuxi and Shanghai, which is making a huge difference to visibility. Hold.

The shares have surged ahead since I made them a main buy in the May issue. Not only has the market breathed a sigh of relief that there has been no discounted placing but the company has said it maintained operational continuity throughout April and May, despite challenging conditions. Demand was obviously challenging in April and May but Zotefoams was able to take action to manage costs and seek new business opportunities. It has announced that its Plastazote polyolefin foam has been specified into a substantial UK Government PPE contract - it could be worth c.10% of turnover. This will significantly supplement existing AZOTE volumes and with increasing volume of HPP foam (ZoomX foam) to Nike, which has plans to launch several new products this summer, a stronger H2 is expected. Investec forecasts eps of 13.9p this year with 17p next. Gain in two months: 42%. Strong hold.

Since my last update, Anexo has appointed Berenberg, which has placed 6m new shares (5.5% of equity) at 125p to raise £7.5m alongside a sell down of 2.8m shares by directors at the same price, completing the job which former broker Cenkos had failed to do.

While new cases of accidents have dropped sig-nificantly due to lower road traffic during the lockdown, its legal arm, Bond Turner, continues to

Eckoh (ECK) 63p Sector: AIM, Software & Computer ServicesJoules (JOUL) 117p

Sector: Retailers

Anexo (ANX) 139.5p Sector: AIM, Support Services

Zotefoams (ZTF) 358p Sector: Industrial Materials

XLMedia (XLM) 29p Sector: AIM, Media

therefore, been able to report that it is trading well ahead of expectations. History GAN was unquestionably classier. Its specialism was converting offline casino slot machines into their online equivalents, which it then made available (via a proprietary gaming server platform) to land based casino operators wanting to move online. On the other hand, Gaming Realms is also a game developer but with one key game in 30-odd variants - “Slingo,” a combination of slots and bingo - which it supplies to casino operators. They consider it to be “premium content’ by all accounts and the games appeal to a mass market of mobile phone users who play games a lot but don't think of themselves as gamers.

Gaming Realms comes with a good manage-ment pedigree but a fusty history. It was established by the three co-founders of Cashcade, one of the leading online bingo operators in the UK, which created Foxy Bingo, and was eventually sold to PartyGaming for £96m.

Not long after the merger of PartyGaming with bwin to form bwin.party in March 2011, the trio left to launch Gaming Realms. In July 2013, the company joined the market by way of a reverse into a cash shell known as Pursuit Dynamics, a London-listed business that had claimed to have developed a fluid processing technology but which was then seemingly unveiled as some kind of scam and came to a sticky end. It didn’t have a lot of cash left by that time but it had an AIM listing and the ability to raise money. £3.4m was raised at the time of the reverse, which left the business valued at £19m.

Anyone looking at the old prospectus will be left with a harrowed look of despair. The acquired business had a cluster of small games and sales of £0.8m a year before being acquired. These targeted the UK online bingo and casino gambling markets (including Spin Genie and Pocket Fruity) and there were also some social games played on Facebook with play money, mimicking the slots machines in casinos. But a lot has changed since then.

A transforming development came in 2015 when Gaming Realms bought the casual gaming brand Slingo for US$18m, together with an associat-ed placing that raised £12.5m at 25p. Slingo, which had revenues of US$6m at the time, dwarfed all the other games in the portfolio and provided a direct entry point into the North American market, which was about to open up for real money gaming.

Established in 1996, Slingo has proved to be a leading casual online real-money game, which combines Slot and Bingo functionality and has been downloaded tens of millions of times and played several billion times since.

There are multiple (30+) different variants of Slingo including Slingo Riches, Slingo Extreme. Slingo Shuffle Roulette as well as variants of Slingo games being developed and delivered for licensees such as Deal Or No Deal Slingo (Endemol) and Monopoly Slingo (Hasbro).

What is Slingo? As I am learning, Slingo combines the appeal of slot machine games with bingo. With short session times

with the impact felt most at the acquired TI Media business, which has heavy exposure to print (30m cir-culation). But as Future has proved, it is adept at taking content and shifting it online via its vanilla platform to drive e-commerce and digital ad sales, which are coming through nicely.

The Media business grew 52% to £115m in H1 driven by the average monthly online users up 26% to 253m (spiking +66% in March) once the lockdown came into force. The increased traffic on sites (espe-cially technology and Livescience titles) led to a better than expected performance in high margin e-commerce revenues (+68%), as well as a continued solid performance in advertising (+14%). The mix change has resulted in gross margin rocketing to 81% and the effect of positive operational gearing saw adjusted EBITDA margins rise 8.2% to a whopping 30%.

Numis forecasts eps of 76.5p for the year to end September - so this is the first results RNS for a while not to result in a forecast upgrade. Tipped at 352p, the gain is 260%. Some profit should have been taken but hold the rest.

Sometimes shares in a company entering a high growth market can look horribly expensive. They can stay looking horribly expensive but the share price continues to rise and the PE begins to expand and a speculative bubble develops. You only need to look at my recent recommendation of GAN, which is presently trading at the equivalent of 524p versus the tip price of 51.5p in March ‘19.

I mention GAN not because I am ready for a bout of chest thumping but because that share has changed the lives of some SCSW subscribers. Maybe that's an exaggeration - but judging from some comments, it has made some of them a lot of money very quickly.

For a long time, GAN left investors cold. But I knew when I did the write up that it was their problem, not ours. What it needed (it turned out exactly as I had expected) was the US online gaming markets to open up on a state-by-state basis and the company’s NASDAQ listing to unlock the value.

Boredom and gambling has also proved a good theme for lockdown, which has seen the amount wagered on casino sites climb as sports betting was curtailed due to the dearth of sporting events. The subject of this article, Gaming Realms, has recently,

system in the cloud, which automatically replaces this sensitive number with jibberish - a randomly generat-ed alphanumeric ID (“token”) - by converting the signal. For example, your card number “3787-3449-3671-0002” will appear as “a8f6%gb83fhBuf6%,” a random token on the merchant’s payment page so they cannot steal it. When the agent clicks ‘pay,’ the sensitive data is then sent straight to the appropriate third party, such as the payment processor, bypassing the contact centre’s infrastructure altogether. The system is patented and these are virgin sales to most customers as they have never had such a system.

The UK only has 2,500 call centres and the nature of sales is part fixed licence and part transactional whereas the US work is based on fixed contractual fees giving it continued resilience in the current situa-tion, says Philpot. A typical contract is US$750,000 over three years (with an element of hardware), of which a third will be implementation fees - although having adopted IFRS15, the whole lot these days gets recognised over the contract term. Take out the Coral sales and the US secure payment side has grown 63% to US$8.1m in this period helping push group recur-ring revenue by 4% to £24.8m - 79% of the total - but this doesn’t reflect the recently won work (US$10.7m new US orders won) as it typically takes some 6-9 months to mobilise. A buy on a two or three year view.

Boohoo continues to confound the sceptics, with forecasts standing 10-15% higher than before the pandemic at £119.5m pretax profit/eps of 7.4p. The latest Q1 showed sales up 45% year-on-year versus consensus expectations of 10-20%, with growth in the latter two months of lockdown being up 70%.

Growth was strong in all geographies (US in par-ticular, +79% year-on-year) and gross margin also improved 60 bps in this quarter to 55.6%, the highest seen since 2016.

Boohoo has just announced it has spent £5.25m (of the £200m raised in a placing during May to fund M&A) to acquire the Online business of recently administrated brands Oasis and Warehouse. The brands will allow boohoo to continue to cultivate a slightly older demographic at mid-market pricing versus its core audience. These new brands will be folded into the supply chain and operational infras-tructure over the coming months. Based on last year's accounts the business will add just under £50m of online revenue - so it doesn't take a rocket scientist to work out this is going to be a dirt cheap deal. Brokers are now calling the shares to a 475p target. I made Boohoo a main write up at 42.5p in September ‘14 and many times after. Take some profit; hold the rest.

COVID-19 has accelerated the longstanding structural trends in both Media and Magazine segments. With Magazine sales down as large newsagents like WH Smiths went into lockdown, more people sought infor-mation online, causing Future's Media side to see sharp audience growth. Overall, sales grew 33% to £144.3m (+11% organic) and adjusted pretax profit rose 77% to £39.9m (+40% organic). Eps rose 56% to 31.9p.

Magazine revenues reduced by 11% to £29.3m

5

GAMING REALMS (GMR)

Sector : AIM, Tourism & Leisure

Latest Price : 11.9p

High/Low : 14.6p - 4.4p

Market Cap. : £33.8m

Shares in issue: 284m

end12/2020 EPS/PER est 0p -

end12/2021 EPS/PER est 0.5p 23.8

end12/2022 EPS/PER est 0.9p 13.2

Telephone 08451 233 773

Registrars 03707 020 003

CALENDAR Int/Fins/AGM SEP/APR/AUG

Future (FUTR) 1266p Sector: Media

Boohoo.com (BOO) 413p Sector: AIM, General Retailers

Spreading Slingo around Gaming Realms makes its content available through its remote gaming server, which houses the games (including Spin Genie, Pocket Fruity and others) and this platform allows the games to be downloaded to multiple locations (importantly including a mobile capability) where end users play the games. Real time reporting systems also provide the gaming and tax authorities with a schedule of the games played, payout etc.

Distribution deals have been signed with Scientific Games and 888.com’s Dragonfish platform (and others) who have integrated its content on their own platforms and are making that content available to its online gaming operator clients. Hasbro, which has an established market presence in land-based and digital gaming through its Monopoly brands is also helping to identify licencing opportunities.

Of the several US states to have regulated online gaming, New Jersey has become a successful market - and several online casinos have also signed up including Golden Nugget, Resorts Casino, Caesars Interactive and Draftkings. Gaming Realms is now targeting Pennsylvania and Michigan - as it gains traction, the proportion of revenue from the US could balloon from 40% currently.

Naturally, there tends to be a bit of a lag while these companies integrate the game onto their websites and get first depositors but revenues have begun to climb. Last month, Gaming Realms reported that licensing revenue in the five months to May was up 80%, having been up 90% in Q1 20. The social gaming side was +15%. Management says it expects EBITDA to be “significantly” ahead of expectations. In the light of that statement, Cenkos has increased its FY20 EBITDA forecast by 40% to £1.4m, which it expects to double to £2.8m next year. Corresponding pretax loss of £0.1m becomes a £1.4m pretax profit (eps 0.5p). Net cash was £2.6m at the end of December and there is a £1.5m deferred payment to come in December from the B2C sale. I am keeping a watching brief, mainly because I think the growth rate may ease post lockdown but the broker says not so and that the risk remains on the upside.

6

and engaging content, not only is it a fast moving game when compared to bingo but it can be played on a mobile phone.

Basically, players are given a number of turns to “spin” the numbers below their 5x5 Slingo card, which looks similar to a bingo card. With each spin, five numbers appear on the reels at the bottom of the screen and numbers are daubed off the Slingo card if present. Points are awarded for completing hori-zontal, vertical or diagonal lines on the grid (known as slingos) and in some cases patterns, and the aim is to score as many points as possible. Bets can start from 50p and go up to £200.

During the game, it is mostly numbers that come up on the reels but symbols and special items (jokers, devils and so on) can appear to help you or slow your progress. The more lines you make the higher the prize. It can also be played in a multiplay-er environment and has proved immensely popular.

In the old days, Gaming Realms’ mainstay was to market Slingo direct to consumers (B2C) but the fact is, most casual gamers would get it wrong and leave the platform when their initial grub stake had been lost and this made for a high customer churn rate. It therefore needed to be adept because the average revenue value per customer of say £120 over their lifetime might compare with a relatively high acquisition cost of £70.

In the end it found the environment for acquir-ing customers for its games was just too competitive and it couldn’t invest enough to build scale so it changed its model. Rather than selling through its own B2C channels, Gaming Realms now dis-tributes games to other parties for a revenue share and B2B licensees bear all the costs of customer acquisition whilst it receives a percentage of the games performance. Gaming Realms might make a smaller margin per customer in this way but the volumes are bigger and it can transcend national boundaries. The number of licensees has been growing and now stands at 23 casinos including the biggest operators in the market such as Jackpotjoy, 888Casino.com, Ladbrokes Coral, GVC, William Hill, Betsson, Sky Betting & Gaming (UK) and News International.

The number of new COVID-19 cases has been on a downward trend and lockdown has been eased this month as non-essential shops re-open in England. For the first time since March, consumers are able to go clothes shopping and some secondary school classes have reopened for the final few weeks of the summer term. Pubs, bars, cafes and restaurants in England should also be able to re-open their doors in July.

So, little by little, restrictions are being lifted but life is not going to return to normal any time soon; face masks are obligatory on public trans-port, diners in restaurants must stay two metres apart and shoppers must also obey social distanc-ing and are discouraged from browsing and using changing rooms.

It now seems inevitable that the measures taken to control the pandemic will result in a dramatic change in the way consumers buy material goods. Against this background, a large property estate has become undesirable given the relatively high cost commitment of commercial rents and business rates versus falling levels of footfall. During lockdown most retailers and leisure operators used multiple cash preservation tools - staff were furloughed across most geogra-phies; headcount cut and capex reduced; some property rents were deferred and some have been able to renegotiate lower rents; VAT and customs payments have been deferred; negotiations have taken place with lenders to waive covenant tests; and some money has been saved from the annual business rates holiday.

Retailing is hard, fashion retailing even more so. A need to pay for autumn/winter stock commit-ments when they had no money coming in has caused considerable grief and most have collabo-rated with suppliers leading to discounts, extended payment terms and reduced future buying commit-ments.

We will not be going back to the pre-February normal for sales densities. But that doesn’t mean there are no opportunities emerging. There has been enforced savings by households during lockdown (£80bn in 2020 estimated by Peel Hunt), which provides firepower for a recovery and e-commerce has taken off in recent months (eg. Joules +40% year-on-year; Ted Baker +80%; Superdry +100%, Boohoo +70%). Helicopter money and VAT reductions could provide further impetus.

Despite the shift in consumption patterns and the prospect of a recession this year putting pressure on FY20 numbers for everyone, I am expecting a disconnect between valuations and prospects to emerge as sentiment shifts. The five shares covered here have turned their attention to survival with four tapping shareholders for funds, which could mark the low ebb for both share price and profits. • Initially a Glasgow-based shirt specialist, Ted Baker (TED; 94p) has advanced into womenswear

RETAIL & LEISURE and COVID-19

drinks and cheap beers but this has evolved to an emphasis on cocktails and premium beers, usually not available in supermarkets. The Cuba bars, which offer Cuban and Spanish cocktails, are aimed at older and more affluent customers; average spend per head is c. £32.50 versus £30 at the core Revolution bars.

New management initiatives have since mate-rially reduced the cash burn and while the group is unable to trade, the group’s lender has been very supportive in significantly increasing the borrow-ing facility. Earlier this month it has also complet-ed an equity issue at 20p to raise £15m to strength-en the balance sheet. Revolution’s long term target has always been 140 sites and COVID-19 could create consolidation opportunities. Although there are no forecasts available, it looks a buy at this level. • City Pub (CPC; 100p), which owns 48 wet-led pubs in affluent towns and cities across the UK, had been on a decent growth trajectory before it was derailed by COVID-19. Management took swift action when all the pubs were closed and furloughed staff to reduce monthly losses to £350,000 during lockdown but given considerable macro uncertainty, uncertainty surrounding the timing of re-opening, the degree of social distancing and the unknown impact on consumer behaviour, City had the ignominy of raising new money (£22m) in April via a placing and open offer at a depressed 50p, near the lowest ebb. The new money reduced bank debt to £13m and leaves c£22m headroom.

Chairman Clive Watson is an old hand in the trade. His tenure at his first pub company, Capital Pub Group, was cut short in 2011 when the business received a bid from Greene King. Watson subsequently launched City a year later when he acquired four pubs, since when it has bought 5-7 units each year. Occasionally it has also done the odd freehold development.

City likes to identify pubs that are suitable for material improvement through refurbishment and repositioning and typically moves them into an all day trading environment - food and coffee at midday attracting business workers, tourists and shoppers before moving onto a younger crowd/students in the evening. Several also have accommodation.

Being a “free house” rather than tied, City is able to offer a wide range of drinks and believes it is well placed to capture market share as lockdown restrictions ease with many of its bigger pubs ben-efiting from large outdoor areas/gardens. Liberum expects to see a phased reopening, with a gradual recovery in demand over the summer and autumn, a poor Christmas (Brexit to come) and 34 pubs open by the year end. It forecasts a £6.5m loss this year (loss per share 7.1p) before a move back to a £5.3m profit next year (eps 4.3p). • The decline of physical retail in theory should create opportunities for UK leisure stocks. Not only can bowling centres and cinemas fill vacant space

One is that in the past few years Superdry took control of its European partners in France, Spain, Germany and Scandinavia and the US to open stores under its own steam. In the year to April 19, Superdry generated £1.7bn global brand sales and £872m revenues from 248 owned stores, 468 franchised stores and 22 licensed stores. As it was, revenue split 23% e-commerce, 40% retail and 37% wholesale. Overall, the UK was 37% of revenues with the rest of Europe accounting for 49%.

A second difference to Ted Baker is that Superdry had liquidity to manage through COVID-19. In May, when stores were shut, cashburn reduced to only £1-2m a week, when net cash was still £40m plus a £90m borrowing facility.

Dunkerton inherited a much revamped IT system and new warehouses in Germany and the US, enabling it to get closer to its customers and thus lowering the unit cost of online delivery. But the brand had lost its way. Superdry has historically been led by menswear targeting the 15-25 age bracket and upon his return, Dunkerton binned the childrenswear initiative, which has helped push womenswear to 50% for the first time. Ranges have given consumers four clear style choices with the main "casual and vintage" Superdry look comple-mented by a "sophisticated and minimal" range, sportswear/athleisure and a new "Energy" streetwear/skatewear range (called SDX), which is bold and expensive.

Virtually all of the European stores have reopened (and 75% of franchised stores) with improving daily footfall and some weeks have seen online sales rebound to +100% year-on-year as online has captured c. one-third of store market share. Encouragingly, management attributes this to social media campaigns and the better ranges. Jefferies forecasts a loss per share of 8p moving to eps of 8p next year. Buy. • Revolution Bars (RBG; 24.7p): Reports as I write of an illegal rave in Manchester attended by 6,000 with no one snitching to the police got me thinking that 16-24 year olds will drink themselves silly when pubs reopen. This age bracket is also expected to see the largest unemployment given many are employed in retail, leisure and hospitality.

It is the second time around on the market for this company, which owns a chain of “Revolution” branded late night cocktail bars. The first time was in 2000. Then called Inventive Leisure, it was taken private in 2006.

It returned to market in 2015, re-named, shorn of lossmaking sites and with a more contemporary look. It then saw off a second takeover offer of 203p from Stonegate in Oct 2017 but Revolution’s share price has been floored by COVID-19 and it wouldn’t be surprising if a bidder returned at some point.

Revolution comprises an estate of 74 outlets branded as “Revolution” or “Revolución de Cuba.” These are located nationwide with the biggest con-centration in the North, the Midlands and the South East (incl. London).

Each site is large - typically 5,000 sq ft and over 2-3 floors - with table service and music and live acts. The offering for Mk1 was vodka-based

& accessories, homeware and gifting with a modern British ‘affordable luxury’ brand propo-sition. Womenswear is the biggest category at 60% of sales.

The brand operates a relatively modest 46 stores in the UK positioned as showrooms but extensive reach comes through 308 concessions and 135 partner stores - making it capital light. Using this model Ted Baker entered the US in 1998 (38 stores in the US now); in 2004 it entered Australia and New Zealand; in 2005 license agree-ments were signed covering Asia and the Middle East; and since then a new joint venture has been established to expand into Mainland China and Hong Kong. These have helped brand sales top £1.2bn and just under half has come from outside the UK.

For a long time, Ted Baker could do no wrong as it grew sales every year. But more recently there has been a litany of problems with founder Ray Kelvin resigning in March ‘19 amid allegations of bottom-pinching. This was followed by problemat-ic IT systems upgrades, a stock write down in Asia and the US and then news (review ongoing) that the value of its stock is estimated to have been overstated by £20-25m (c10% of stock value). Except for the latter, all the other issues were reflected by an £80m exceptional in the last results with sales of £630m and underlying pretax profit of £9.8m.

Retail revenues consist of stores, concessions and e-commerce. Baker had been seeing a downward trajectory in its retail sales densities even before COVID-19, so much so that its store revenues in FY20 were down 5% to £440m despite a 5% increase in average sq ft of space. Instead the wholesale channel had until recently been the key growth driver, having more than doubled in size over five years to £171m. Licence income (which lists 14 products including bedding, eyewear, fra-grances, luggage and watches) was £19m.

Ted Baker’s plight has been demonstrated by the recent sale-and-leaseback of its head office in Kings Cross, the Ugly Brown Building, to raise £72m followed by a hugely dilutive placing to raise £99.6m, which ballooned the number of shares by 285%. It leaves £34m cash post-raise.

At a fraction of the £34 high four years ago, Ted’s market cap. of £175m has attracted activist Toscafund (26.4% stake), which becomes the largest holder post the placing ahead of Kelvin (15.8% after a £3.5m subscription). Despite short term COVID-19 concerns, I think there is value in the business. There are £40m of savings coming from a payroll reduction, lease renegotiations and a reduction in suppliers from 200 to 100 and Baker remains a well-established brand - lockdown showed this strength with strong online growth but any overhang from the equity placing may hinder an immediate recovery in the shares. • At first glance it is easy to imagine Superdry (SDRY; 149p) is going to be similar to Ted Baker. Both are multichannel and global. Both have also had founders running the business for long periods; in the case of Superdry, Julian Dunkerton left but returned a year ago. But there are key differences.

7

>> Continues on page 8

THE GROWTH PORTFOLIO 3

SHAREWATCH is published monthly by Equitylink Ltd, Subscriber Services, PO Box 1015, Croydon, CR9 5DL. Equitylink Ltd is an independent organisation and is not tied to any stockbroker, bank or any other financial institution. Editor and Publisher: S Berry BEng, Contributor: R Welby BA. Opinions, interpretations and conclusions are our own. Facts have been checked where possible, although no responsibility can be accepted for errors, omissions or inaccuracies. Small companies may have poor marketability and there may be a big difference between the buying and selling price. Shares and the income from them can go down as well as up. The past is not a guide to future performance. Investments mentioned may not be suitable for everyone. Readers should always obtain appropriate professional advice from their stockbrokers before entering into any transaction in securities. Equitylink, its officers and employees and/or any connected persons may have positions in any of the shares that are mentioned. Where the editorial team has an interest this is disclosed at the time of publication. Our conflicts of interest policy and terms of business are available on the sharewatch.co.uk website. The Sharewatch Growth Portfolio is a virtual portfolio based entirely on selections contained herein and its results have not been independently audited and may not be repeated. It should not be viewed as a representation of the average performance of Sharewatch company recommendations. This document may not be copied or transmitted in any form without prior permission. © 2020 All rights reserved. ISSN 1358-183X

in shopping centres but they meet the consumer demand shift from “product consumption” to “experience consumption.”

In the case of Hollywood Bowl (BOWL; 156.5p), the dominant player in the fragmented ten pin bowling sector, even before COVID-19, the steady decline of bricks and mortar retail had seen it on the receiving end of material capital contribu-tions towards new centres from landlords. The phe-nomenom has less of a bearing on rival Ten Entertainment (TEG; 175.5p), which has a strategy of buying small rivals rather than opening new sites.

I met Hollywood Bowl’s chief executive Lawrence Keen in February when its share price was on fire at around 300p but who would have pre-dicted that a month later its business would essen-tially be shut down by the lockdown, with the shares bottoming out at 71p. After a bounce, it carried out a placing. Post raise at 145p, April net debt was c.£4.1m and it lives to fight another day even if it runs at 20% of the prior year’s trade this year.

Hollywood Bowl has 60 large capacity sites with an average sq. footage of 29,000-30,000 and 24 lanes per centre, similar to Ten but dwarfing the average of 14 that is typical of the market. The business has come a long way since it was divested as a non-core division of Mitchell & Butler when it had 14 sites. Having merged with another operator that had 18 units, it has been expanding by 2-4 greenfield sites annually and improving the customer proposition with investment in diners (to keep players on site rather than moving to eat else-where), web-based scoring systems (so customers begin their games immediately) and “pins-on-strings” technology (less downtime). Around c.48% of sales is from bowling, 28% food & beverage and 23% from amusement machines.

Post-COVID, social distancing will make it hard for the small operators to become viable but Hollywood’s management have introduced a reopening strategy based on using alternative bowling lanes and more space between bar/dining tables and in the amusement area. There is also reduced opening hours for off-peak periods, a smaller food menu and revised rotas to save costs.

What is also exciting is that it has three nine-hole indoor mini golf courses under the Puttshack brands - Thorpe Park, York and Rochdale - which can piggyback on the same cost base and the same customers, and an inclement property market will throw up opportunities for expansion. Investec forecasts eps of 1.5p this year and 11p next. A quality operation, which should eventually bounce back.

<< continued from page 7

Date Bought

6/8/15

1/10/15 7/12/15

5/8/16 15/2/17 10/4/17 27/7/17

9/4/18 9/4/18

31/1/19 31/1/19

8/7/19 22/10/19

1/11/19 9/12/19 9/12/19

3/2/20 3/2/20

Value Now

(£) 18475 10360 10980 5420

13500 6350

15400 19700 12660 13420 9850

11040 16800 11680 15200 13050 9200 8600

21405

243090

Buying Price

(p) 197.5 1045 229.2

220 20.5 190 470 93.5

329.5 59.9

53.75 48.1 313 149 133

63 290 144

Total Cost

(£) 5007

10495 2337 2245 5196 9593 9445 9390 3340

12085 5447

19330 12565 11965 13345

9495 11645 14517

Present Price

(p) 739

1036 1098

542 54

127 770 197

1266 67.1 98.5 27.6 420 146 152 87

230 86

Cash £ Total £

2500 1000 1000 1000 25000 5000 2000 10000 1000 20000 10000 40000 4000 8000 10000 15000 4000 10000

Shares Bought Kainos EMIS Softcat IG Design SDI Group Medica Alpha FX Kape Future UP Global Sourcing Luceco XLMedia Ergomed Argentex Volex CentralNIC Mpac Reach

^*

^*

* *

*

*

* •

Transactions take full account of dealing charges and bid offer spreads. Income from dividends is ignored. Current holdings in the portfolio are valued at mid prices and include all buying costs. Starting cap £100,000 (2 Jan ‘15). * Part profits taken • Averaged down. ^Adj for special divs.

PERFORMANCE TABLE Change on One Month Since Start

Growth Portfolio +1.51% +143.09%

FTSE-100 6292.60 +4.99% -3.90%

FTSE-All Share 3486.77 +5.60% -1.06%

Lockdown has eased further. Shops and bars are resuming, albeit with a six-foot separation buffer and even Spain has set up an ‘air bridge’ allowing tourists from the UK in. So the picture has brightened greatly but as I said last month, I am having to rethink some of GP3’s constituents going forward. Last month I suggested there were three in my firing line; GP3 has now sold Bloomsbury (at a small loss), the free carry in Altitude (locking in a small profit) and half of IG. As a bit of a tidy up, I have taken a decision to average down on XLMedia, which has been in the dog house for a while (see page 4).

I am generally happier with most of the other GP3 constituents at the moment. Kainos has been doing well as it continues to win work from the Government. As I write, Volex has delivered great results (more next time). Future has shown good growth offsetting the slowdown in newstrade with a surge in online users, achieving a record-breaking 329m users in March, up 66% year-on-year (see page 5). This month I am majoring on compa-nies capable of catching the global consumer shift online. You will see this demonstrated by the two main write ups as well the COVID-19 feature - I think much of the big

shift in online activity during the lockdown is going to stick.

Having come off the phone to Codemasters, which I touched upon last month. I am leading with that. The gaming sector is on fire and Codemasters is set to launch new games with more regularity. The shares are on a prospective PE of 20.1 versus 56.5 for FDEV.

THE GROWTH PORTFOLIO 1

Starting Capital (1/11/94): £25,000 Termination Value (12/7/01): £297,142 Portfolio gain: +1088.57% FTSE-100 gain in period: +89.19% FTSE-All Share gain: +84.99%

THE GROWTH PORTFOLIO 2

Starting Capital (13/1/01): £50,000 Termination Value (28/11/14): £653,643 Portfolio gain: +1207.29% FTSE-100 gain in period: +17.51% FTSE-All Share gain: +34.39%