If you're trying to explain the sudden spike in Games Workshop 's (GAW) share price towards the end of last year, you needn't look past the devaluation of sterling. Almost three-quarters of the company's sales are generated overseas, making it a significant beneficiary of the current weakness in the pound. That's not to do management down: the timing of the currency slump also coincides with a tangible uptick in trading, something chief executive Kevin Rountree said was built on a "considerable team effort across the business".
Digging into the numbers in more detail, it would seem that adjusted pre-tax profits of £13.8m comfortably beat brokerage Peel Hunt's £13m estimate. But, in fact, the company enjoyed a £0.8m boost thanks to an accounting change, which means its expectations were bang on. The change relates to the rate of depreciation on certain development costs - for the full year, this is expected to result in a gain of around £1.4m. And it's worth noting that Peel Hunt upgraded its own forecasts by a whopping 30 per cent following the half-year update in early December.
Management initiatives are certainly starting to pay off. Of particular note was the growth in retail sales - up 20 per cent at constant currencies to £25.8m - given that this division has been struggling for some time. That channel is now showing growth across all territories, but particularly in the US where management has used some of the translational benefit to reduce prices, a move which has in turn encouraged volumes. During the first half, the group opened 17 stores and closed eight, leaving the current store estate at 460.
The trade division is also doing well, with 60 new accounts added during the first half, while mail order sales also rose 8 per cent. Finally, the amount of royalties Games Workshop receives in relation to its licensed business also rose from £1.5m to £3.3m.
Analysts at Peel Hunt still expect pre-tax profits of £24m for the year to May 2017, giving EPS of 57.9p, compared with £16.9m and 41.9p in FY2016.
| GAMES WORKSHOP (GAW) | ||||
|---|---|---|---|---|
| ORD PRICE: | 770p | MARKET VALUE: | £247m | |
| TOUCH: | 765-780p | 12-MONTH HIGH: | 805p | LOW: 420p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 183p* | NET CASH: | £15.9m | |
| Half-year to 27 Nov | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 55.3 | 6.3 | 14.9 | 20.0 |
| 2016 | 70.9 | 13.8 | 34.0 | 25.0 |
| % change | +28 | +119 | +128 | +25 |
Ex-div: tbc Payment: tbc *Includes intangible assets of £14.3m, or 44.4p a share | ||||
