Games Workshop Group — Strong trading continues

Games Workshop Group (LSE: GAW)

Last close As at 04/11/2024

GBP120.40

80.00 (0.67%)

Market capitalisation

GBP3,942m

More on this equity

Research: Consumer

Games Workshop Group — Strong trading continues

Games Workshop’s (GAW) update highlights that trading remains ahead of the board’s expectations and that PBT in H121 will be not less than £80m, with growth of at least 37% on H120, and just 10% below the COVID-19-affected FY20. Demand continues to be driven, predominantly, by the recent new Warhammer 40,000 release and through the Trade and Online channels, while Retail is still recovering from the COVID-19 closures. Retail outlets are closed where required by governments but, unlike during the previous lockdown, the factory and warehouses are still operating following investment to make the locations compliant with social distancing requirements. We upgrade our FY21 PBT forecasts by 14%.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Games Workshop Group

Strong trading continues

H1 trading update

Consumer goods

10 November 2020

Price

10,590p

Market cap

£3,460m

Net cash (£m) at May 2020 (excluding lease liabilities)

52.9

Shares in issue

32.7m

Free float

95%

Code

GAW

Primary exchange

LSE

Secondary exchange

Share price performance

%

1m

3m

12m

Abs

3.1

18.6

139.5

Rel (local)

3.2

21.2

192.9

52-week high/low

11,000p

3,590p

Business description

Games Workshop is a leading international specialist designer, manufacturer and multi-channel retailer of miniatures, scenery, artwork and fiction for tabletop miniature games set in its fantasy Warhammer worlds.

Next events

H121 trading update

December 2020

Interim results

January 2021

Analysts

Russell Pointon

+44 (0)20 3077 5757

Neil Shah

+44 (0)20 3077 5700

Games Workshop Group is a research client of Edison Investment Research Limited

Games Workshop’s (GAW) update highlights that trading remains ahead of the board’s expectations and that PBT in H121 will be not less than £80m, with growth of at least 37% on H120, and just 10% below the COVID-19-affected FY20. Demand continues to be driven, predominantly, by the recent new Warhammer 40,000 release and through the Trade and Online channels, while Retail is still recovering from the COVID-19 closures. Retail outlets are closed where required by governments but, unlike during the previous lockdown, the factory and warehouses are still operating following investment to make the locations compliant with social distancing requirements. We upgrade our FY21 PBT forecasts by 14%.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

05/19

256.6

81.3

200.8

155

52.7

1.5

05/20

269.7

89.4

217.8

145

48.6

1.4

05/21e

333.1

132.4

322.7

200

32.8

1.9

05/22e

375.0

155.9

379.9

220

27.9

2.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

H121: Strong demand continues

With no quantitative commentary on trading beyond the indication that PBT in H121 will be not less than £80m, we estimate the key drivers to the better than expected profit outturn. If we assume GAW will report PBT of £81m in H121, and accrue half (£5.5m) of our FY21 royalty income estimate (£11m), the implied operating profit of £75.5m would be a y-o-y increase of c 56%. Further, if the gross margin at the interim stage is consistent with our full year assumption (c 73%), revenue in H121 would have to be at least £180m if we assume a low single-digit increase in operating costs in the first half. This would represent revenue growth of c 28% in the most recent quarter, an acceleration from the 15% reported for Q121 against a smaller comparative (Q120 £78m, Q220 £70.4m). The implied lower margin ie c 34% in Q221 versus 50% in Q121 (giving 40%+ for H121), highlights its volatility on a quarterly basis due to the phasing of releases and associated expenses.

FY21: PBT estimate increased by 14%

We upgrade our PBT estimates for FY21 by 14% to £132.4m and FY22 by 25% to £155.9m. We increase our FY21 revenue growth assumptions for all channels (Online to 37%, Trade to 34%, Retail to -5%). Our revised revenue forecast for FY21 of £333.1m is equivalent to annual growth of 12% on H120’s (the last period not affected by COVID-19) revenue of £148.4m, when annualised (ie £296.7m). The forecast operating margin (pre-royalties) for FY21 increases to 36.6% from 34.8%, implying a margin in H221 of c 29% versus 40%+ in H121.

Valuation: Further earning upgrades expected

On our updated forecast the P/E multiple for FY21 is 32.8x. The EV/sales multiple for FY21 is 10.2x, a premium to the previous high achieved in FY20 of 9.5x, which suggests the current share price is discounting further earnings upgrades.

Exhibit 1: Financial summary

Year-end May

£'m

 

2015

2016

2017

2018

2019

2020

2021e

2022e

 

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

119.1

118.1

158.1

221.3

256.6

269.7

333.1

375.0

Cost of sales

 

 

(37.0)

(37.4)

(43.7)

(64.2)

(83.3)

(89.1)

(89.5)

(98.6)

Gross profit

 

 

82.1

80.6

114.4

157.1

173.3

180.6

243.6

276.4

SG&A (expenses)

 

 

(67.2)

(69.7)

(83.6)

(92.4)

(103.4)

(107.4)

(121.6)

(132.2)

Other operating income/(expense)

 

 

1.5

5.9

7.5

9.6

11.4

16.8

11.0

12.1

Exceptionals and adjustments

 

 

0

0

0

0

0

0

0

0

EBITDA (excl royalties)

 

 

26.0

21.3

41.8

76.8

85.7

98.8

149.3

173.4

EBITDA

 

 

27.5

27.3

49.3

86.5

97.1

115.6

160.3

185.5

Depreciation and amortisation

 

 

(11.1)

(10.4)

(11.0)

(12.1)

(15.9)

(25.6)

(27.4)

(29.2)

Operating profit (before royalties and exceptionals)

 

14.9

10.9

30.8

64.7

69.8

73.2

121.9

144.2

Reported operating profit

 

 

16.5

16.9

38.3

74.3

81.2

90.0

132.9

156.3

Finance income/(expense)

 

 

0.1

0.1

0.1

(0.0)

0.1

(0.6)

(0.5)

(0.4)

Reported PBT

 

 

16.6

16.9

38.4

74.3

81.3

89.4

132.4

155.9

Income tax expense (includes exceptionals)

 

 

(4.3)

(3.5)

(7.9)

(14.8)

(15.5)

(18.1)

(26.8)

(31.6)

Adjusted net income

 

 

12.2

13.5

30.5

59.5

65.8

71.3

105.6

124.4

Reported net income

 

 

12.3

13.5

30.5

59.5

65.8

71.3

105.6

124.4

WASC (m)

 

 

31.975

32.093

32.126

32.258

32.438

32.602

32.602

32.602

Diluted average number of shares (m)

 

 

32.025

32.150

32.325

32.732

32.785

32.736

32.736

32.736

Reported EPS (p)

 

 

38.3

42.1

95.1

184.3

202.9

218.7

324.0

381.4

Reported diluted EPS (p)

 

 

38.3

42.0

94.5

181.6

200.8

217.8

322.7

379.9

Adjusted diluted EPS (p)

 

 

38.1

42.0

94.5

181.6

200.8

217.8

322.7

379.9

DPS (p)

 

 

52.0

40.0

74.0

126.0

155.0

145.0

200.0

220.0

Gross margin

 

 

69.0%

68.3%

72.4%

71.0%

67.5%

67.0%

73.1%

73.7%

EBITDA margin (excl royalties)

 

 

21.8%

18.1%

26.5%

34.7%

33.4%

36.6%

44.8%

46.2%

EBITDA margin (incl royalties)

 

 

23.1%

23.1%

31.2%

39.1%

37.8%

42.9%

48.1%

49.5%

Operating margin (before royalties and exceptionals)

 

 

12.5%

9.2%

19.5%

29.2%

27.2%

27.1%

36.6%

38.5%

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

22.7

22.6

22.1

30.1

35.3

42.0

34.8

26.8

Right-of-use assets

 

 

 

 

 

 

 

31.9

31.9

31.9

Goodwill

 

 

1.4

1.4

1.4

1.4

1.4

1.4

1.4

1.4

Intangible assets

 

 

8.3

10.5

12.9

14.2

16.0

17.6

20.2

23.0

Other non-current assets

 

 

4.8

4.1

6.5

7.8

11.7

16.4

16.4

16.4

Total non-current assets

 

 

37.2

38.7

43.0

53.5

64.4

109.3

104.7

99.6

Cash and equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

83.4

138.6

Inventories

 

 

7.6

8.5

12.4

20.2

24.2

20.7

20.8

22.9

Trade and other receivables

 

 

9.4

10.1

13.0

15.5

18.8

19.6

24.2

27.3

Other current assets

 

 

0.6

0.7

0.6

0.5

0.8

0.2

0.2

0.2

Total current assets

 

 

30.2

31.2

43.9

64.7

73.2

93.4

128.6

188.9

Trade and other payables

 

 

(13.1)

(12.8)

(16.5)

(20.3)

(19.2)

(30.3)

(20.0)

(22.0)

Borrowings

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Leases

 

 

0.0

0.0

0.0

0.0

0.0

(8.3)

(8.3)

(8.3)

Other current liabilities

 

 

(2.0)

(2.7)

(6.5)

(7.3)

(10.1)

(4.5)

(4.5)

(4.5)

Total current liabilities

 

 

(15.1)

(15.6)

(23.0)

(27.6)

(29.3)

(43.1)

(32.8)

(34.8)

Borrowings

 

 

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Leases

 

 

0.0

0.0

0.0

0.0

0.0

(23.8)

(23.6)

(23.6)

Other non-current liabilities

 

 

(0.8)

(1.1)

(1.0)

(1.2)

(1.9)

(2.1)

(2.1)

(2.1)

Total non-current liabilities

 

 

(0.8)

(1.1)

(1.0)

(1.2)

(1.9)

(25.9)

(25.7)

(25.7)

Net assets

 

 

51.5

53.2

62.8

89.3

106.5

133.7

174.9

228.0

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

 

 

EBIT

 

 

16.5

16.9

38.3

74.3

81.2

90.0

132.9

156.3

Depreciation and amortisation

 

 

11.1

10.4

10.2

12.2

15.9

25.0

27.4

29.2

Impairments

 

 

0.0

0.0

0.8

(0.0)

0.0

0.6

0.0

0.0

Share based payments

 

 

0.2

0.2

0.2

0.2

0.3

0.5

0.5

0.5

Other adjustments

 

 

0.1

0.1

0.1

0.1

0.3

0.3

0.0

0.0

Movements in working capital

 

 

(2.3)

(0.8)

(0.2)

(4.4)

(9.0)

10.8

(15.0)

(3.1)

Income taxes paid

 

 

(2.3)

(2.6)

(5.5)

(12.2)

(16.3)

(22.7)

(26.8)

(31.6)

Operating cash flow

 

 

23.3

24.2

43.9

70.1

72.5

104.5

119.0

151.3

Net capex and intangibles

 

 

(12.3)

(12.7)

(12.8)

(21.6)

(22.5)

(24.6)

(22.8)

(24.0)

Net interest

 

 

0.1

0.1

0.1

(0.0)

0.1

0.1

(0.5)

(0.4)

Net proceeds from issue of shares

 

 

0.7

0.3

0.1

0.9

0.7

0.8

0.0

0.0

Dividends paid

 

 

(16.6)

(12.8)

(23.8)

(38.7)

(50.3)

(47.3)

(65.2)

(71.7)

Other financing activities

 

 

0.0

0.0

(1.9)

0.0

0.0

(10.3)

0.0

0.0

Net cash flow

 

 

(4.8)

(0.9)

5.5

10.7

0.5

23.2

30.5

55.2

Opening cash and cash equivalents

 

 

17.6

12.6

11.8

17.9

28.5

29.4

52.9

83.4

Currency translation differences and other

 

 

(0.2)

0.1

0.6

(0.1)

0.3

0.3

0.0

0.0

Closing cash and cash equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

83.4

138.6

Closing net cash (including leases)

 

 

12.6

11.8

17.9

28.5

29.4

20.8

51.5

106.7

Source: Games Workshop, Edison Investment Research


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This report has been commissioned by Games Workshop and prepared and issued by Edison, in consideration of a fee payable by Games Workshop. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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General disclaimer and copyright

This report has been commissioned by Games Workshop and prepared and issued by Edison, in consideration of a fee payable by Games Workshop. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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New Zealand

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United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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London +44 (0)20 3077 5700

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United Kingdom

New York +1 646 653 7026

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Global Dominion Access — Optimising corporate infrastructure

Global Dominion is a global company providing services and end-to-end (design to completion) project solutions, where increasing complexity is driving the requirement for external expertise. It has a strong track record reflecting operational excellence and stringent financial controls (EBIT CAGR 23% in 2015–19). COVID-19 has primarily affected operational/project delivery. End markets remain robust, reflecting the critical nature and payback of such investment, suggesting profit recovery should be swift, potentially enabling a return to the targeted growth plan of doubling 2018 net income by 2023. Uncertainties remain over the timing of recovery. The balance sheet is strong in a net cash position.

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