This report is an updated version of the report published on 04 May 2022 at 08:19 AM GMT+1

Leisure & Gaming Industry: Poised for Growth Owing to Change in Consumer Preferences

1. UK Leisure & Gaming Sector Landscape

The leisure industry is termed to be one of the most growth-oriented sectors with consumer interest skewed towards lifestyle living in recent times. Consumers are looking to enrich their lives through experiences and make their everyday life more memorable and enjoyable. The sector comprises of businesses and organizations which are inclined to music, film, hospitality & tourism, gambling & events, amusement parks, sports, food services, and franchises, etc.

According to the data from the Office for National Statistics, the UK GDP grew by 0.1% in February 2022, driven by a 0.2% increase in the services sector. Service space growth was achieved on the back of a business uptick in tourism-related and allied industries. Travel agencies, tour operators, and other reservation service activities grew by 33.1% during the month, while accommodation rose by 23.0%. 

Key Trends in the Leisure & Gaming Sector

 Risk Exposures to Leisure & Gaming Sector

• COVID Impact: The onset of the COVID pandemic has crippled the leisure industry, with several firms being shut down or going out of business. The uncertainty of COVID still lingers on and can stall the recovery of the sector.
• Inflation Concerns: Inflation has been witnessed at record highs in recent months owing to geopolitical stress and a surge in crude oil prices. Bank of England looks poised to raise the interest rate, which can curb the consumer's discretionary spending abilities.
• Regulatory Risk: The segment is also exposed to prudent regulatory measures that can have a direct impact on the constituent companies’ operations and functioning.

SWOT Analysis

Leisure & Gaming Sector Outlook

Leisure & Gaming has been projected as one of the preferred sectors for the United Kingdom and the industry has remained buoyant in the pre-pandemic phase. The industry has been impacted by the spread of the COVID virus and subsequent social distancing norms during 2020 and 2021. However, the sector has witnessed a recovery during the start of 2022 with an increase in consumer spending on gaming, leisure, and entertainment. Growth in the services industry in February 2022 has been achieved on the back of improvement in tourism-related industries. UK GDP rose by 0.1% in February 2022 and 0.8% growth in January 2022, thus reflecting improving business conditions in the UK. This augurs well for the travel, leisure, & tourism industry, and its allied sectors.  

2. Investment analysis and stocks under discussion (GAW and GMR)

After gaining insights into the Leisure & Gaming sector, we would look at the business model of two players listed on the London Stock Exchange.

A. Games Workshop Group PLC (LON: GAW)

(Recommendation: Buy, Potential Upside: 18.06%, Market Capitalization: GBP 2.41 billion)

Games Workshop Group PLC is an FTSE 250 listed gaming company that makes miniature wargames. Some of its well-known products are Warhammer Age of Sigmar and Warhammer.

The Group expects to release its full-year trading update for the year ending 29 May 2022 in June 2022.  

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)  

From a technical standpoint, the stock is hovering between the middle and lower Bollinger band.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 18.06% over the closing price of GBX 7,330.00 (as of 03 May 2022).

B. Gaming Realms PLC (LON: GMR)

(Recommendation: Speculative Buy, Potential Upside: 16.43%, Market Capitalization: GBP 83.18 million)

Gaming Realms PLC is an FTSE AIM All-Share listed company that creates and licenses innovative games for mobile.

One Year Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)

From a technical standpoint, the stock is trading close to its lower Bollinger band, with 14 day RSI level of ~40.87.

Valuation Methodology

Our illustrative valuation model suggests that the stock has an upside potential of 16.43% over the closing price of GBX 28.50 (as of May 03, 2022).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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