In This Article:
While many investors bemoan the lacklustre performance of the world economy, this column takes a very different view. A 3.2pc global growth rate last year, in spite of interest rates reaching multi-decade highs across the developed world, represents a surprisingly solid performance.
Then there is the prospect of an improving GDP growth rate as inflation falls to its 2pc target in the US, Eurozone and Britain which provides scope for interest rate cuts to take place. The long-term outlook for global growth is hugely upbeat.
As a result, Questor plans to persevere with consumer-focused stocks that have struggled to deliver impressive financial performance over recent years. The end of the cost-of-living crisis, alongside a gradually improving economic outlook, means these companies will experience stronger operating conditions that should translate into growing profits and higher share prices.
For example, our Inheritance Tax Portfolio’s holding in video games publisher Team17 has proved to be a disappointment so far. Having soared by over 200pc within 18 months following its addition to the portfolio in June 2019, the company’s shares have subsequently slumped in line with many consumer-focused firms.
The stock now trades 6pc down on our notional purchase price despite having outperformed the FTSE Aim All-Share index by 10 percentage points since being added to the portfolio.
The company’s latest annual results, released last month, were somewhat underwhelming. While sales increased by 12pc, profitability was negatively impacted by tough operating conditions alongside impairment charges, a larger proportion of sales being generated by lower margin third-party games and higher costs.
On an adjusted basis, pre-tax profits fell by 39pc year-on-year.
In response to worsening profitability, the company has restructured its main Games Label division as it seeks to lower costs and become more competitive. In the meantime, its sound financial position means it has the required breathing space for a refreshed strategy to be implemented under a relatively new management team.
For example, it currently has a net cash position of around £39m that could also be used to fund further acquisitions.
Despite its share price fall of around two-thirds since the start of 2021, Team17 still trades on a rather lofty price-to-earnings ratio of around 15. While this fails to represent a bargain buy, especially when compared with other smaller consumer-focused firms, it is significantly below the earnings multiple of 64 on which the stock briefly traded in early 2021.