Harry Nimmo, manager of Standard Life UK Smaller Companies Trust (SLS) and ASI UK Smaller Companies Fund (GB00BBX46183), outlines his reasons for liking games developer Team17 (TM17).
"There are now a good handful of video-game-exposed companies listed in the UK, but Team17 is one of the lower-risk models,” said Mr Nimmo. “It is a developer, but focused on lower-budget ‘indie’ games, and works with many third-party developers where they have a revenue share model. This means that there is very low capital at risk from the success 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. It was the creator of Worms, for example, and it continues to innovate on successful brands.”
"The video gaming sector has changed massively over the years, and Team17 very much fits our quality growth momentum investment style. Through digital distribution and enhanced revenue-generating additional content through the lifecycle of a game, the quality of the revenue streams and visibility of companies in the industry has improved. Digital distribution also enhanced the margin opportunity, cutting the retail channel out of the chain.
"We have been invested in Team17 since its initial public offering (IPO) in 2018 it has delivered consistent earnings upgrades. We also hold its chief executive and founder Debbie Bestwick in very high regard.
"Team17 continues to have a strong pipeline of new development opportunities, and increasingly strong reputation in the industry, and third-party developers globally are keen to work with this company.”
Team17 was Standard Life UK Smaller Companies Trust’s 10th largest holding at the end of March, accounting for 2.7 per cent of its assets.
Investors Chronicle rates Team17 a ‘hold’ rather than a ‘buy’ for reasons including its high price/earnings ratio, which was 42.85 as of 5 May.
