What to Expect with GRVY & RHDGF

Written by

Jae Jun

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GRVY has been awfully quiet huh?

It peaked at 135% this year following the announcement that its game Ragnarok Online 2 was finally released and has now fallen back and sits on a 21% gain YTD. Still not bad and now that there is much less fuss and less people jumping on board, it makes it easier to talk about.

GRVY’s fiscal year is the same as the calendar year and so their Q2 books is been closed and numbers will be reported next month.

The number I am most curious about is how GRVY fared in its first full quarter with RO2 in operation.

Due to the expenses involved in marketing, upgrading servers and continual development to fix bugs and improve gameplay, net income will likely be either at breakeven or slightly positive if other games show improved revenue.

People have referred to GRVY as dead money since the stock price won’t go anywhere unless there is an activist or some other catalyst. Value stocks literally all fall into this category anyways, so this talk of dead money is best ignored. You can’t buy a value stock with the intention of flipping it in a matter of months.

It takes an awesome company like P&G years to develop a simple household item and then to release it. It takes longer for game development and even longer for turnarounds.

At the moment the stock price of GRVY is $1.7x

Other value per share items include

  • Book value = $4.26
  • Book value minus intangibles = $2.88
  • NCAV = $1.41
  • NNWC = $1.20

Margin of safety is still strong, company is not losing money but with intangibles making up a fair bit of the book value, it makes me wonder whether I was wrong not to sell when it shot up.

Intangibles with game companies are more valuable than most intangibles because the game titles are actually brands and franchises. A game like Diablo by Activition is a huge franchise and has a cult following. Other game companies would jump at the chance to buy it. Problem is I don’t have a clear number on GRVY’s games.

But what I am sure of is that the intangibles are worth more than zero.

If I add back 50% of intangibles, the adjusted book value is around $3.57 per share.

As you can see, there is a pretty good floor price that GRVY should be trading at and now with a full quarter of results that includes RO2, this is now only just the beginning of a potential turnaround.

Retail Holdings (RHDGF)

It’s that time of the year when Retail Holdings will soon announce their annual distribution.

Last year, I received a special dividend of $2.50 which turned out to be a 14% yield. According to a recent filing, the dividend will be lower and although not confirmed, it could be around the $2 mark. If the stock price stays around $19, that is still equivalent to a 10% yield. Not bad at all.

If you like dividends you should do some study on the company before the September distribution date.

If anyone knows how I can look at RHDGF’s notes, please let me know. This is one company I would love to hold in both equity and debt.

RHDGF announced today that as part of a debt refinancing at SVP Worldwide that extended the maturity and increased the size of their available facilities to allow further growth in the worldwide sewing business, the Company agreed to extend the maturity of the SVP Notes (the “Notes”) that it holds from 2014 to 2018, maintaining the current 12% interest rate (a minimum of 7% of principal to be paid in cash).  Concurrent with the refinancing, SVP prepaid $5.0 million of the Notes at a 15% discount to notional value, reducing the outstanding value of the remaining Notes to $21.6 million as at 30 June 2012.

As a consequence of receiving this $5.0 million pre-payment, the Retail Holdings Board of Directors anticipates increasing the recommended distribution to shareholders, which is subject to approval at the Company’s Annual Meeting in September 2012, from at least $1.00 per Share to $2.00 per Share. The Company is evaluating the impact of the extension and of the discount on prepayment on the carrying value of the remaining Notes.


Long GRVY and RHDGF at time of writing.

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3 responses to “What to Expect with GRVY & RHDGF”

  1. Shariff Coste says:

    What do you think about the competitive advantage of GRVY? I wish they would have kept the retro 2D style of the original Ragnarok because it was aiming a niche market. The second game just looks like a generic WoW-like. Way to common these days. Another thing I don’t like about the company is the fact that they have only one popular franchise (atleast in North America). This makes it a risky company since if the game is rubbish then you have to wait a while for the next one even if the value is good.

    *Continue you’re good work I learned alot by reading OSV*

  2. danno51 says:

    Future revenue growth opportunity is banking on GRVY success. Sadly it doesn’t look like GRVY has a new blockbuster game (other than some minigames) in the pipeline. So its Rag II or bust. That said, it is still chugging along WAY below book value. It is as if Mr. Market is pricing Rag II as a flop. What surprises me is how undervalued GRVY stays as a profitable gaming company. Yes it is a mico Korean company…but a stock price near NCAV for any profitable company is surprising…especially one with a catalyst.

    Long GRVY…at least until I see how popular Rag II is in Korea in its first full quarter. If it is a flop in Korea, I don’t know why GRVY would spend resources making it available in other nations. An explosion in revenue for this quarter is critical.

  3. Jae Jun says:

    Hey Dan,

    True that they don’t have another big game in the works and this is where it differs from other gaming companies like ATVI. At the moment RO2 is only being serviced in Korea and has only had 1 full quarter of operation. The interesting part will be how GRVY licenses the game out and what revenues look like when Japan gets their official localised version. That’s what GRVY is working on for sure at the moment. Trying to localize it for the countries where license agreements are in place. I see this as only the beginning of a potential turnaround. Still in very early stages.

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