Alongside lead manager James Harries, he added the Japanese gaming company to their low-turnover portfolio in the past year, entering at a 4% position.
They said Nintendo’s revenues had previously been too unpredictable to warrant investment, but the company has undergone a significant transformation that markets has “definitely not priced in”.
“The problem is that people are still thinking of it as the Nintendo of old,” Boniek explained. “They’re worried about what the new Switch will look like, but that’s really missing the bigger picture. The company is sending strong signals that things are different now.
“It's not a widely held stock and the market consensus is projecting declining earnings for the next three years, which is just not going to happen. Things would have to go catastrophically wrong for that to happen.”
The ¥8.3trn (£45.6bn) company is up 5.2% over the past year, but Boniek said there is much more growth to come once investors shed outdated views on the business.
Share price of Nintendo over the past year
Source: Google Finance
Cashflows previously went through volatile ebbs and flows, but revenues are more consistent now that newer consoles have moved towards cloud gaming.
“It is going through a very exciting evolution from a business that used to be driven by a boom and bust cycle in consoles to something that is going to be a lot more predictable in the future,” Boniek said.
“It has a beautiful attribute in that it doesn’t require much capital to grow. If you don't need capital, you're quite robust to inflation and you can grow while also rewarding your shareholders handsomely because you don't have capex to spend on.”
Indeed, Nintendo is an established name with a strong foothold in the industry that other cloud gaming giants such as Xbox owner Microsoft can’t compete with, according to Boniek.
He said: “It is impossible for Microsoft – which invested heavily in gaming over the past five years – to compete with Nintendo, so we’re very excited about the transformation that Nintendo is about to embark.”
Although its share price has risen some way in recent months, Harries expects further growth once markets overcome their outdated fears about Nintendo’s new console.
“We think the new console will be an iteration of the current Switch and therefore won't be something completely unexpected and therefore run the risk of not being accepted by gamers,” he said.
“We therefore think the transfer of those individual accounts to the next Switch will be in a far greater magnitude than is currently being expected by the market, so we're really excited about that.”
Not only is the company’s core gaming business thriving, but its diversification across other sectors has strengthened revenue streams.
It has launched a new theme park in Japan and the recent Super Mario Bros. Movie grossed $1.3bn worldwide, sending “demand for Nintendo's intellectual property through the roof,” according to Boniek.
They said: “The movie will contribute to company profits both directly as well as indirectly through increased sales of Mario related titles and other revenue streams that inevitably stand to benefit from the enhanced exposure to the IP.
“These recent successes have restored some zest in the share price, but the sentiment pendulum will likely continue to swing until a successor is announced for the maturing Switch.”
Nintendo’s share price has soared 20.3% since the Super Mario Bros. Movie premiered in April, with its public exposure drawing in retail money.
Share price of Nintendo in 2023
Source: Google Finance
However, markets have yet to fully realise the potential that artificial intelligence (AI) could have on the company’s gaming business, according to Train and Lindsell.
“We expect [Nintendo] to use and benefit from AI in the future, but at the moment it is not seen as a proxy for the technology,” they said.