Shares: Toying around in a jungle of big games

INVESTORS and retailers - probably rightly - are not expecting too much of Christmas this year. One theory is that shoppers are buying more in volume terms, but not in value. Nevertheless, there are companies heavily dependent on Christmas shopping that are doing better than a year ago. And there is one rip-roaring boom - in video games and the machines to play them.

There are various ways of investing in the video game boom. Dixons, the electrical goods retailer, at 258p is a big beneficiary with its stores piled high with Nintendo's Super Mario Brothers and Sega's Sonic the Hedgehog. A classier investment is the US retailing giant Toys'R Us at dollars 39.50 ( pounds 25), which has long had a huge share of the games market particularly in its home base and has a long record of steady growth in its earnings per share. The most direct way in is via the two Japanese companies, Nintendo and Sega, at equivalent sterling prices of pounds 58.50 and pounds 52.50 respectively. Long- time market leader Nintendo is under fierce attack from the booming Sega, which looks the better investment for people with money to invest in Japan. A bonus is the likelihood of further appreciation in the yen, which has been moving up strongly against sterling since Britain left the ERM. Despite the collapse of Japanese share prices, Sega recently moved to an all-time peak in sterling terms.

An investment that will appeal to penny-share aficionados is Rhino, the new vehicle for the entrepreneurial talents of Bev Ripley and Terry Norris, two businessmen who helped to build up Cityvision, the video rental specialist, before it was taken over by Blockbuster. The pair recently took a stake in struggling JMD Group, changed its name and refinanced the business with a pounds 3.9m fund-raising at 12.5p. Since then the shares have roared up to 27.5p to capitalise the group at pounds 13.8m. That is quite a valuation for a business that so far has just five shops trading as Future Zone.

But there could still be plenty of excitement ahead. Mr Norris says the video games boom is just the dress rehearsal for a massive boom in all computer- related games and educational products, with interactive disks becoming more important.

The pair are using the depressed state of the retail property market to build up a chain of shops they reckon could reach 80-100 outlets in high streets and malls before they need further funding. Their aim is to take a sizeable chunk of an exploding market that was already worth pounds 660m in 1991. Cityvision gave early investors a wonderful run, and Rhino just might repeat the performance.

Some parts of the traditional toys market are suffering from the flight into video games. Shares in Hornby, the Scalextric manufacturer, have been weak in 1992, and holders must fear a difficult Christmas. A safer market is for children too young for video games. This is the target for Bluebird Toys, the Big Yellow Teapot company led by managing director Angus Fisher.

Its share price has recovered from a low of 30p to 132p and its Polly Pocket range has become Japan's best-selling girl's toy (overseas sales generally account for a third of the pounds 40m- plus turnover). If profits hit pounds 1.5m this year, the fully taxed p/e would be 10 - not too bad in a recession-hit market.

Another Christmas stock on a recovery path is Clinton Cards at 105p. Recovery has begun with current-year profits expected to reach pounds 1.5m for a p/e of 18 and then perhaps double again next year to drop the p/e into single figures.

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