Games Workshop Group — Impressive momentum into H221

Games Workshop Group (LSE: GAW)

Last close As at 02/12/2024

GBP142.20

90.00 (0.64%)

Market capitalisation

GBP4,689m

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Research: Consumer

Games Workshop Group — Impressive momentum into H221

Games Workshop Group’s (GAW’s) H121 trading update highlights that it has enjoyed a stronger end to the period than expected by management: H121 PBT will be not less £90m (y-o-y growth of c 54%), £10m higher than indicated in the 7 November trading statement (see our recent update note). Therefore, GAW’s PBT in H121 is greater than that for the whole of FY20. The strong performance leads to a 40% increase in the year-to-date dividend, as the company continues to distribute truly surplus cash. We upgrade our PBT forecasts for FY21 by a further 6%. Following the relative weakness in the share price in recent weeks, and the upgrade to our forecasts, the P/E multiple of 28.9x for FY21e is back below recent highs.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Games Workshop Group

Impressive momentum into H221

H121 trading update

Consumer goods

7 December 2020

Price

9,875p

Market cap

£3,227m

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

N/A

Share price performance

%

1m

3m

12m

Abs

(6.1)

16.1

72.2

Rel (local)

(16.1)

2.1

85.6

52-week high/low

11,460p

3,590p

Business description

Games Workshop Group 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 results

12 January 2021

Analysts

Russell Pointon

+44 (0)20 3077 5700

Neil Shah

+44 (0)20 3077 5715

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

Games Workshop Group’s (GAW’s) H121 trading update highlights that it has enjoyed a stronger end to the period than expected by management: H121 PBT will be not less £90m (y-o-y growth of c 54%), £10m higher than indicated in the 7 November trading statement (see our recent update note). Therefore, GAW’s PBT in H121 is greater than that for the whole of FY20. The strong performance leads to a 40% increase in the year-to-date dividend, as the company continues to distribute truly surplus cash. We upgrade our PBT forecasts for FY21 by a further 6%. Following the relative weakness in the share price in recent weeks, and the upgrade to our forecasts, the P/E multiple of 28.9x for FY21e is back below recent highs.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

05/19

256.6

81.3

200.8

155

49.2

1.6

05/20

269.7

89.4

217.8

145

45.3

1.5

05/21e

349.1

140.4

342.0

200

28.9

2.0

05/22e

381.2

156.6

381.4

220

25.9

2.2

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

H121: A strong finish to the interim period

Management indicates H121 revenue is c £185m and PBT is not less than £90m, year-on-year growth of c 25% and 54% respectively. Revenue growth accelerated to 35% in Q221, driven by the Indomitus launch in July, from 15% growth in Q121. Given the improvement in PBT relative to revenue growth versus the prior trading statement, we believe that royalty income (reported below operating profit) is higher than expected. Therefore, if we accrue c £2m more royalty income to the interim period than half of our (prior) FY21 estimate (£11m) it implies operating profit pre-royalties for H121 of at least c £83m (margins of c 50% in Q1, c 40% in Q2 and c 45% in H1), and an extraordinary 90%+ drop through of incremental revenue to operating profit. The declared dividend of 60p takes the year-to-date total to 140p, a 40% increase on H120.

FY21: PBT estimate increased by 6%

We upgrade out PBT estimate for FY21 by 6% to £140.4m. We increase our assumption for revenue growth to 30% y-o-y (from 24%), driven by an increase in online revenue growth, to give a revenue forecast of £349.1m, and we increase our forecast for other operating income to £13m from £11m given the implied over-delivery in H121.

Valuation: Multiples at discount to recent highs

Following a very strong performance, in recent weeks the share price has been weak given some rotation into shares that performed poorly through COVID-19 and that the market expects to perform better given the recent news on vaccines. On our new forecasts for FY21, the EV/sales multiple is 9.1x and the P/E is 28.9x, below the prior all-time highs in FY20 of 9.5x and 36.5x respectively.

Exhibit 1: Financial summary

Year-end 31 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

349.1

381.2

Cost of sales

 

 

(37.0)

(37.4)

(43.7)

(64.2)

(83.3)

(89.1)

(96.0)

(101.7)

Gross profit

 

 

82.1

80.6

114.4

157.1

173.3

180.6

253.1

279.5

SG&A (expenses)

 

 

(67.2)

(69.7)

(83.6)

(92.4)

(103.4)

(107.4)

(125.2)

(137.9)

Other operating income/(expense)

 

 

1.5

5.9

7.5

9.6

11.4

16.8

13.0

15.4

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

155.3

170.8

EBITDA

 

 

27.5

27.3

49.3

86.5

97.1

115.6

168.3

186.2

Depreciation and amortisation

 

 

(11.1)

(10.4)

(11.0)

(12.1)

(15.9)

(25.6)

(27.4)

(29.3)

Operating profit (before royalties and exceptionals)

 

14.9

10.9

30.8

64.7

69.8

73.2

127.9

141.6

Reported operating profit

 

 

16.5

16.9

38.3

74.3

81.2

90.0

140.9

157.0

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

140.4

156.6

Income tax expense (includes exceptionals)

 

 

(4.3)

(3.5)

(7.9)

(14.8)

(15.5)

(18.1)

(28.4)

(31.7)

Adjusted net income

 

 

12.2

13.5

30.5

59.5

65.8

71.3

112.0

124.9

Reported net income

 

 

12.3

13.5

30.5

59.5

65.8

71.3

112.0

124.9

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

343.5

383.0

Reported diluted EPS (p)

 

 

38.3

42.0

94.5

181.6

200.8

217.8

342.0

381.4

Adjusted diluted EPS (p)

 

 

38.1

42.0

94.5

181.6

200.8

217.8

342.0

381.4

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%

72.5%

73.3%

EBITDA margin (excl royalties)

 

 

21.8%

18.1%

26.5%

34.7%

33.4%

36.6%

44.5%

44.8%

EBITDA margin (incl royalties)

 

 

23.1%

23.1%

31.2%

39.1%

37.8%

42.9%

48.2%

48.9%

Operating margin (before royalties and exceptionals)

 

 

12.5%

9.2%

19.5%

29.2%

27.2%

27.1%

36.6%

37.1%

 

 

 

 

 

 

 

 

 

 

 

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

20.7

23.6

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

105.2

100.1

Cash and equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

87.4

143.6

Inventories

 

 

7.6

8.5

12.4

20.2

24.2

20.7

21.6

23.6

Trade and other receivables

 

 

9.4

10.1

13.0

15.5

18.8

19.6

25.4

27.7

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

134.5

195.1

Trade and other payables

 

 

(13.1)

(12.8)

(16.5)

(20.3)

(19.2)

(30.3)

(20.0)

(21.9)

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)

(34.7)

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

181.2

234.8

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

 

 

EBIT

 

 

16.5

16.9

38.3

74.3

81.2

90.0

140.9

157.0

Depreciation and amortisation

 

 

11.1

10.4

10.2

12.2

15.9

25.0

27.4

29.3

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

(17.0)

(2.5)

Income taxes paid

 

 

(2.3)

(2.6)

(5.5)

(12.2)

(16.3)

(22.7)

(28.4)

(31.7)

Operating cash flow

 

 

23.3

24.2

43.9

70.1

72.5

104.5

123.4

152.6

Net capex and intangibles

 

 

(12.3)

(12.7)

(12.8)

(21.6)

(22.5)

(24.6)

(23.2)

(24.2)

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

34.5

56.2

Opening cash and cash equivalents

 

 

17.6

12.6

11.8

17.9

28.5

29.4

52.9

87.4

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

87.4

143.6

Closing net cash (including leases)

 

 

12.6

11.8

17.9

28.5

29.4

20.8

55.5

111.7

Source: Company accounts, Edison Investment Research

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This report has been commissioned by Games Workshop Group and prepared and issued by Edison, in consideration of a fee payable by Games Workshop Group. 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.

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This report has been commissioned by Games Workshop Group and prepared and issued by Edison, in consideration of a fee payable by Games Workshop Group. 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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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.

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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

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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Research: Healthcare

Carmat — Development progressing in the US and EU

Carmat continues to make progress in the development of the total artificial heart (TAH). In February, the FDA granted full approval for the company to initiate an early feasibility study (EFS) in 10 patients at seven US centres. Additionally, the company has obtained reimbursement from the Centers for Medicare and Medicaid Services (CMS) for the device and routine care items and services related to the study. The company expects to implant the first TAH in Q121.

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