Shares digital

Sales after good results prompt speculation about clouds on the horizon

by John Marshall

Shortly after the group’s excellent results Peter Lewis, the 67 year-old non-executive chairman of Game Group, sold the bulk of his holding in order to ‘address estate duty’ and for ‘tax planning reasons’. However he is also following in the footsteps of CEO Lisa Morgan and the deputy CEO David Thomas who sold just over 2.4 million shares recently (Shares 6 March). At the time of going to press, Lewis has not replied to our request to speak to him but the willingness of directors to sell shares underlines analysts’ cynicism about rumours of a possible takeover.

Although the results were spectacular and current trading is strong several brokers are recommending clients to cash in and sell the shares. Rhys Williams of Arbuthnot believes the group is at the peak of the cycle and that investors should take note. The ‘chairman is telling you what to do,’ he proclaims.

Similarly Sanjay Vidyarthi of Dresdner Kleinwort is recommending clients to sell with a price target of 175p. He is concerned that pricing will be much more competitive for products this Christmas. Last year there was strong demand for consoles, but this year the demand will be for games, where competition is much fiercer.

David O’Brien of Altium is similarly bearish. He is concerned that the company will have difficulty hitting some top-of-the-range forecasts, believes the market will have to reduce forecasts for next year ‘significantly’, and concurs with Vidyarthi that the game market will become more competitive.

However, his real concern is about longer-term prospects. He thinks that just as the video rental market has been hit by downloads so will the game market. Then the group’s large store portfolio could become an incubus.

Deutsche Bank is forecasting earnings of 20.5p placing the shares on a PE of 13.2, which Lewis clearly feels is too high.