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Games Workshop posts record sales

Investors left wanting for detail on potentially lucrative Amazon deal
January 10, 2023
  • Dividend raised
  • IT integration headache

Games Workshop's (GAW) shares were boosted last month by the announcement of a deal in principle with Amazon (US:AMZN) that could bring the miniature wargame manufacturer’s fantasy world to film and television screens. Part of the reason the shares were marked down by 5 per cent after the release of these half-year results was the lack of news on the signing of a contract with the tech giant, which house broker Peel Hunt thinks “could bring material royalties as well as broaden the reach of Warhammer”. How long this process will take, and when fee income will flow through to Games Workshop, remains to be seen. And an overall fall in profits in the period, driven by a poorer licensing fee performance, also hit investor sentiment.

The company was downbeat about sales growth, despite a record interim top-line performance and a strong showing across channels in its UK, Australia, and Canada markets. Management said of the overall sales posting that this “isn't where we wanted to be, particularly in the US”, where constant currency sales were flat despite accounts and trade outlets growth. The board expects improvements in the second half, but its downbeat assessment of current progress does at least show the extent of its ambitions to turbocharge growth.

Core revenues rose by 11 per cent to £212mn, surpassing £200mn in a six-month period for the first time, with uplifts across all external sales divisions (trade, retail, and online). Licensing sales were down by 29 per cent to £14.3mn, however, after a drop in income from multi-year contracts signed in the prior year. This led to licensing operating profit falling from £18.8mn to £12.9mn, which dragged down pre-tax profits.

Lower profits and higher costs were reflected in other metrics, despite operating costs being “managed exceptionally well”. Gross profit margin fell by 510 basis points to 66.5 per cent. And the core average 12-month return on capital employed fell over 2022, from 118 per cent in May to 112 per cent in November. On the operational side of things, the company flagged issues and costs around integrating new IT systems.

Games Workshop’s valuation is attractive. The shares have gone through a de-rating after trading at more than 30 times forward earnings in 2021, and at significantly higher levels before that. They trade at a consensus 23 times forward earnings, according to FactSet, below the five-year average of 24 times. With its leading brand equity, which has created a solid demand base, and City expectations of strong sales and profit growth over the coming years, we remain bullish on the company. Buy.

Last IC View: Buy, 7,360p, 26 Jul 2022

GAMES WORKSHOP (GAW)  
ORD PRICE:8,805pMARKET VALUE:£2.9bn
TOUCH:8,790-8,805p12-MONTH HIGH:9,985pLOW: 5,565p
DIVIDEND YIELD:3.4%PE RATIO:23
NET ASSET VALUE:761pNET CASH:£35.7mn
Half-year to 27 NovTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
2021 (restated)21288.2217100
202222783.6202165
% change+7-5-7+65
Ex-div:19 Jan   
Payment:24 Feb   
The board has declared a (post-period end) dividend of 130p payable through surplus cash on 24 Feb. Dividends of 90p, 30p, and 45p were declared and paid in the six months to 27 Nov 2022.