Today I’m looking at the investment prospects of two London-quoted leviathans.
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.