Roll the dice on Games Workshop

For the vast majority of us, painting small plastic figures and pretending we're the general of a Dark Eldar army may seem like a slightly geeky pastime. But while the hobby itself may be of niche interest, shares in the world's biggest fantasy role playing game (RPG) company, Games Workshop, should have a much wider appeal.

Certainly, any investors who rolled the dice and bought the shares a year ago will have been amply rewarded - they've climbed more than 50 per cent since, as the company repeatedly upgraded its profit outlook. But there's a lot to suggest the shares could ascend further still.

The group's recent results showed the benefits of the significant effort put into streamlining the business. Improved efficiency in its factories - including lower headcount and securing better terms from suppliers - added 4 percentage points to gross margin. And better manufacturing process meant a higher quality product that could command increased prices.

Group overheads were also reduced by £4.3m by reducing staffing levels in its hobby centres and regional offices, and renegotiating rents as leases on its shops - or, as they're known, hobby centres - came up for renewal. Management also enhanced their reputation for running a tight ship, by reducing stock levels and lowering expenditure on shop fitting, which meant the group swung to a net cash position over the year.

But, as management freely admits, the revenue performance hasn't been so impressive, and analyst Hugh-Guy Lorriman at broker Seymour Pierce reckons this lack of revenue growth is one of the main reasons why the shares remain lowly rated. Improving sales will be the main focus this year, though, and as Mr Lorriman points out, the re-engineered business could help it deliver longer-term growth.

One key initiative has been the development of one-man hobby centres, which provide a lower cost alternative to the two-to-three man shops it currently operates. Management also sees the one-man centres as an efficient method of further expanding the group's own store estate. Although an unusual store model, the company points out that it is primarily a manufacturer and not a retailer, and that its centres are intended more to teach people how to engage with the hobby.

The group has also developed a new training programme to help it recruit new enthusiasts. Although the rollout is still in its early stages, early signs are that it is resulting in like-for-like sales improvement in Europe, the first territory to use it before rollout to Northern Europe and the US later this year. That's good news because, with a high proportion of fixed costs, any uplift in sales volumes will have a disproportionately high impact on profits.

Games Workshop also generates revenue from royalties paid by third party manufacturers using its intellectual property. But while these streams are highly profitable, they are also unpredictable and outside of the group's direct control - after a strong 2009 which saw the launch of Electronic Arts' Warhammer Online: Age of Reckoning multiplayer online RPG, royalty revenue slipped 18 per cent last year to £2.5m. Management has also decided to 'cool' its relationship with the City, which might make it harder to command a premium rating.