I’m writing this from my hotel balcony in Mallorca. Having paid a few hundred pounds for a ‘fit to fly’ Covid test, I was delighted (and surprised) that somebody actually checked them. Trading is one of the few jobs where it is truly difficult to take entire days off. What if there is news on any of my holdings, or a significant RNS announcement from a company on my watchlist? Spending an hour on the RNS announcements at 7am is always a worthy investment of time – if only to keep track of company results and updates. One day the facts on a company you track may change for the better, and if you’re in a position to buy quicker than the next person then you get the cheaper stock.
Such a thing happened this week. A technology company I have been tracking announced an 80 percent increase in its royalty income (pure cash), which over a 10-year period will cover most of the company’s current market cap. Of course, we do have to discount this cash back to its Present Value – because cash in the future is not as useful as cash today. But even then, this assumes no further growth in the royalty income and doesn’t count the company’s two other business units. I’ll be waiting for the next set of results to get some more colour on the company and will share more then.
One company that I have built a position in – and intend to add to further should the story and chart continue to be good – is Guild Esports (GILD), a company which has teams or 'clans' of top esports players on its roster and is partly owned by David Beckham. This company is fast approaching its first year of being listed having come to the market in October 2020. Sadly, for those who participated in the IPO this was a complete flop with the price collapsing to 5p. We have talked about ‘lock-ins’ before and this was a prime example of sellers unloading on the bell because the book was not cleaned up properly. You would think that this would be something a broker would focus on because a bad IPO reflects badly on the broker. But for whatever reason, this appears to not have been the case and the price went from 9p to 5p within weeks.
Looking at Chart 1, we can see the how the stock hit 5p and bounced, then came back to test this level with a further bounce. The stock has traded in a range as 7p failed to be broken twice – marking these two prices as significant. Whenever a stock fails to break below or above a certain level, that level becomes worth watching. Rangebound stocks can trade sideways for months or even years, but it’s when they come out of the range that the brakes can come off.
Since listing, the company has won several sponsorship contracts with some serious names, who are looking to target the elusive gaming niche. E-sports is one of (if not the) fastest growing sports in the world, and what was once derided now sees players earning fortunes in prize money. It’s a big business, with managers, coaching teams, psychologists and nutritionists. Guild is hoping to tap into the lucrative sponsorship field and with a multi-million pound contract with Subway announced followed by a partnership and sponsorship deal with Samsung, I believe there will be more to come.
The clan is beginning to monetise itself nicely through various streams of income. First of all, there is the prize money from winning competitions. Secondly, there is the more lucrative sponsorship money winning such prestigious competitions can bring. The company also offers its own merchandise and clothing line (which I expect to be minimal) but the new Guild Academy has much more promise. Gamers can join for £4.99 per month and access tutorials for various games, as well as helping Guild identify and nurture promising talent. It’s also worth of noting that the company recently announced the sale of ‘TaySon’ for $115,000. Tai Starčič joined Guild on a no-fee transfer contract in February 2021 – showing that the company is able to make money selling players. This is a small amount for now, but with the growth of the sector it’s not unrealistic to believe that one day players will trade for millions of pounds.
Guild had nearly £16 million of cash at its year-end results, and so no 'keep-the-lights-on' placing is needed any time soon. Zeus has revenues forecast at £7.2 million this year rising to £13m in FY22. Guild has already signed £7.5m of minimum total contracted sponsorship revenue to date (although this is spread across several years), and believes it can achieve these forecasts.
Moving across to Chart 2, we can see volume starting to ramp up and the price move higher. But it has since failed to breach 8p several times and I see this as significant resistance. A close above 8p would be bullish and also the highest closing price since the first few days of the company’s IPO – from then onwards it’s blue skies ahead. I am long Guild Esports and intend to add to my position should the stock break out of the range as seen in the chart. This is a trend trade for me based on Guild continuing to increase its profile with its fan base and therefore attracting higher sponsorships. I note Faze Clan recently appointed a chief strategy officer to focus on luxury brand sponsorships – e-sports is a sector very much up for grabs and it really is all to play for.
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