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Gaming stocks set to benefit from the coronavirus lockdown

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28/04/2020
While the Covid-19 pandemic continues to disrupt markets, one sector that’s set to do well from the crisis is gaming.

With nearly half of the world’s population under some form of lockdown, hardened gamers have more time to play while newbies may be tempted to try out a new hobby.

UK investment trust managers are even tipping gaming companies as a “covid-proof” investment.

Here’s what some of them have to say about the prospects for the sector:

Walter Price, portfolio manager of Allianz Technology: “We like video games for cyclical and secular reasons. Cyclically, Covid-19 has reactivated latent gamers as time at home is being filled by playing games by many.

“Secularly, the new console cycle in Q4 2020 and the growth of streaming platforms that enable easier game play from the cloud will attract new game players who are both hardcore and casual.

“We think this is an undervalued part of technology.”

Paul Johnson, gaming analyst for Polar Capital Technology Trust: “We hold a position in Microsoft, as well as several video game publishers which stand to benefit. As early as 24 March, Microsoft CEO Satya Nadella said the company had seen ‘peak demand’ on Xbox, with engagement surpassing the December holiday season.

“We believe that higher engagement will translate into higher monetisation and the early signs are promising if third-party transaction data aggregators are to be believed.”

Harry Nimmo, manager of Standard Life UK Smaller Companies Trust: “There are now a good handful of video game-exposed companies listed in the UK, but we believe Team17 is one of the lower-risk models. They are a developer but focused on lower-budget ‘indie’ games, and work with a lot of third-party developers where they have a revenue share model.

“This means that there is very low capital at risk from the success or not of a particular game, with game budgets typically under £1m. Team17’s revenue stream is very diversified, and there is still significant revenue driven by back catalogue titles – they were the creators of Worms for example – where they continue to innovate on successful brands.”

Joe Bauernfreund, investment manager of AVI Global: “We view Sony’s gaming segment as one of the four crown jewels of the empire, with the other three being semiconductors, music, and pictures.

“One common misconception about the gaming business is that its fortunes are tied to the ‘console cycle’, when the reality is that Sony’s gaming business is in the process of converting to a subscription-based digital model. We view this as a fundamentally higher-quality business proposition, as it is less cyclical, subscribers are more sticky, and future revenue and earnings are more visible.”

Alexander Windsor-Clive, analyst for Lindsell Train Investment Trust: “We believe that Nintendo will continue to flourish in the long term, driven both by trends in the industry and the enduring resonance of its ubiquitous intellectual property, which has entertained quite literally hundreds of millions of people across the world over a multi-decade period.

“Companies like Nintendo with dominant intellectual property are best placed to capitalise on the digital shift and future innovations in the sector. Developments in cloud gaming, virtual reality, augmented reality and e-sports are still nascent but have the potential to fundamentally reshape the industry.”

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