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Gfinity – The game is certainly on: is Neville Upton the next Bernie Ecclestone?

By Cynical Bear | Friday 12 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

I last wrote on leading esports business, Gfinity, in July last year following its placing at 5p when it looked as if, potentially, the game was on. Having just announced a £6.25 million placing at 20p this morning, it is now certainly all to play for. It is worth applauding a few involved here but I still have a couple of reservations / observations.

The raise has been heavily supported by the company's two big investors, namely Charles Street International and Nigel Wray who own 44% of the business between them and have maintained their holdings which is impressive. As I mentioned before, many AIM companies rely on the support of such investors willing to invest significant amounts in these early stage ventures.

The funds are stated to be used for the launch of the Gfinity Elite series and to strengthen the team and the technology, but I get the sense that the investors have been persuaded that Gfinity has a real opportunity to create something special, potentially globally in the esports space that is worth backing.

I don’t doubt that there is market opportunity in esports; however, I still have a question as to whether Gfinity can find that effective business model that actually generates cash rather than burning somewhere between £200,000 and £300,000 a month, which it appears to have done consistently ever since coming to market. There is clearly money to be made in esports and one could envisage not that long into the future, a series of global events akin to Formula 1, but can a technology supplier and organiser of online and offline events take a decent chunk of it or will the games makers and console manufacturers take the lion’s share? Can Neville Upton be the esports Bernie Ecclestone?

Those are the key questions for me and, at the moment, I need convincing. However, either way, I’m pleased that Neville Upton, CEO, and Gfinity, who I have followed from pre-IPO days, have been given a significant slug of money to give it a real go. I wish him and the business well.

Would I invest now? Well this brings me to my second observation which is that in some ways, Gfinity is more akin to a private company than a public one as there is very limited free float and retail interest and so if the core investors want to put their money in at 20p then so be it. Is the business worth four times more than it was ten months ago at the last placing? Not obviously but Charles Street wouldn’t have been able to put as much in at a lower price as it owns 30% already so in some ways, it was helpful that the share price had drifted upwards on very low liquidity in recent times. No further comment on that.

The issue for the ordinary punter is that until significant third party liquidity and retail interest is generated in the stock, it’s difficult to know what the “market price” actually is. I’m going to write more specifically on this point over the weekend with a couple of other, more obvious, examples as I’ve reached the conclusion that it’s too risky to invest in these private/public companies until there is some real liquidity and a real market price.

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