Games Workshop's CFO resigns as profits surge

Games Workshop (GAW) delivered record half-year results, with no big surprises in the figures after the guidance provided in last month’s trading update, but the wargame miniature maker’s shares were marked down as investors reacted to the resignation of chief financial officer Rachel Tongue.

Double-digit growth was posted at the key trade and retail channels against last year, with revenues up by 12.6 per cent and 12.3 per cent, respectively. Online sales climbed by 4.9 per cent, despite "some teething issues" with the October launch of a new £10.8mn online store. 

The licensing revenue stream was the only channel to go backwards, down 15 per cent, given the more volatile nature of the company's royalty income. There is material intellectual property revenue potential here, after the company gave a much-anticipated confirmation last month that it inked a deal with Amazon (US:AMZN) for the prospective development of films and TV series based on the world of Warhammer 40,000. 

Profitability improvement in the half was seen in the margin performance as well as the surge in pre-tax income. Core gross margin came in at 69.4 per cent, helped by lower logistics costs and inventory provisions, an increase of over five percentage points.

Strong brand equity continues to attract more interest in the company's universe. Active users of the My Warhammer online portal were up two-thirds to 576,000 year on year, while Warhammer+ subscriber numbers were up from 115,000 to 169,000.

Tongue, who has resigned after nine years on the board, will officially step down at the AGM this year and will leave the company next January. Investors rarely respond well to a CFO resignation, so it was no surprise that the shares nudged downwards despite there being no apparent negative reason for the move. 

Despite the share price uplift from the Amazon announcement, our argument remains the same as in our recent Idea on the company. A share price lower than recent highs — the shares tumbled by 14 per cent in early December after the company revealed that trading had slowed since late summer — offers investors an excellent opportunity to buy a quality company with high margins, an attractive dividend trajectory, a solid balance sheet, and further expansion potential in international markets. 

While Games Workshop's valuation remains pricey, this has fallen from the fantasy rating levels seen during the pandemic. The shares trade at 21 times forward earnings, according to consensus forecasts on FactSet, which is a nice discount to the five-year average of 25 times. Buy. 

Last IC View: Buy, 9,135p, 14 Dec 2023