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Games Workshop chases scale 

Undeterred by Covid-19, the games maker is pursuing international growth 
January 12, 2021
  • Loyal fanbase and new game launch support sales  
  • Solid performance in North America and more factory openings point to greater scale 

The nerds have conquered again. Games Workshop’s (GAW) operating profit grew by more than half to £92m in the six months ended in November, as the wargames maker proved once more that its fans are hooked on its fantasy lore. Or perhaps it is the fumes from the paint. Either way, hobbyists eagerly greeted the release of the latest version of Warhammer 40,000 in the period, which management said was its most successful launch to date. 

This unwavering passion for miniature orks, and other such fantastical creatures, is the company’s lifeblood. And management is harnessing its energy: the new range’s ‘Indomitus’ box for example was designed to reward existing customers, and sold out extremely quickly. Fans spent more time with the brand online, as the ‘warhammer-community’ website grew to an enormous 4.7m users, and customer sessions and pageviews grew.

Focus on engagement evidently pays off. Sales have been so strong that the company said that its ‘out of stocks’ are currently running higher than it would like. Sales to independent retailers grew by a third, with the net number of trade outlets increasing by around 200 accounts to surpass the 5,000 mark. But the biggest growth, unsurprisingly, was in online channels where revenues surged by 87 per cent. Management did note, however, that the user experience for its website still needs to be improved, with a greater focus on personalised content and ease of navigation. 

Its bricks and mortar stores did not perform so well, hurt by coronavirus restrictions - although the company noted that it was in the process of cancelling its access to the UK’s business rates retail discount scheme. It reiterated its commitment to physical shops, describing retail as “paramount” and the best place for the customer to start their journey with the hobby - which goes some way in explaining why the company opened two stores in new locations in the period. Still, if current sales trends continue for the rest of the year, management estimated that around 50 stores out of 529 would not break even. 

Overall, gross margin moved up an impressive 6 percentage points to 75 per cent, credited to increasing volumes. This was no doubt helped by its focus on manufacturing, with output up by almost a third: the Warhammer 40,000 launch alone broke records for factory production volumes, in what management described as a “step change” in unit sales.

Developing its manufacturing capacity scale remains a key focus for management, who are already overseeing the redesign of one of its factories in the UK and who have secured more adjacent land in Nottingham to open up “future options”. 

This push for greater scale is already bearing fruit: sales in North America performed particularly well, where revenues generated by third-party retailers grew by almost a third to £45m, accounting for two-fifths of the trade division’s total. 

Keen engagement, robust revenues and growing scale make for an attractive combination. It is hardly surprising then that Games Workshop was able to pay £1.3m to its staff in December, as well as a total £5m bonus to all of its employees. And shareholders have not missed out: management dished out £26m in dividends, and still finished the period with £96.5m worth of net cash (excluding lease liabilities), compared to £53m at the same point last year. 

Games Workshop is no doubt a high quality operation, with a winning focus on product, engagement and scale. This means that investors will likely struggle to find a bargain entry point. But the market hype that has followed the stock meant that shares slipped 9 per cent on the day of the results. With a still demanding price to earnings ratio of 36, the shares do not seem as expensive as usual. Buy. 

GAMES WORKSHOP (GAW)  
ORD PRICE:10,870pMARKET VALUE:£ 3.56bn
TOUCH:10,850-10,890p12-MONTH HIGH:11,730pLOW: 3,590p
DIVIDEND YIELD:1.0%PE RATIO:36
NET ASSET VALUE:556pNET CASH:£51.2m
Half-year to 29 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend † per share (p)
201914858.6146100
202018791.622680
% change+26+56+55-20
Ex-div:-   
Payment:-   
† A further dividend of 60p per share was declared on 7 December 2020 and is to be paid on 25 January 2021.