Temple-nest-highres

Exceptional start to FY21

Games Workshop Group 11 September 2020 Update
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Games Workshop

Exceptional start to FY21

Q121 trading statement

Consumer goods

11 September 2020

Price

9,930p

Market cap

£3,245m

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

6.6

29.0

117.9

Rel (local)

7.3

34.6

159.4

52-week high/low

9,750p

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 is a research client of Edison Investment Research Limited

Games Workshop’s (GAW) Q121 trading update was well ahead of expectations, indicating that the previously flagged strong post-lockdown demand has continued, helped by a major product re-release in the period. We upgrade our FY21e PBT forecast by 37% to £115.9m, reflecting higher revenue growth, c 12% versus 2% previously, and a higher operating margin pre-royalties of c 35% versus 27% previously. On our new forecasts the P/E for FY21 is 35.2x. The EV/sales multiple of 10.6x is a premium to GAW’s previous highest multiple.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

05/19

256.6

81.3

200.8

155

49.5

1.6

05/20

269.7

89.4

217.8

145

45.6

1.5

05/21e

302.5

115.9

282.4

200

35.2

2.0

05/22e

322.2

125.1

304.9

220

32.6

2.2

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

Q121: Demand continues unabated

GAW’s Q121 revenue growth of 15% y-o-y to c £90m was driven by Trade and Online, while Retail (40% of revenue) declined given the gradual re-opening of locations post COVID-19 and lower footfall. Demand was helped by the new Warhammer 40,000 release, Indomitus, in July. Gross margin improvements, helped by channel mix and phasing of product releases fed through to a much-improved operating profit pre-royalties, which increased by c 60% to c £45m, a margin of c 50%. The quarterly figures highlight the variability in operating margin due the phasing of releases etc (Q120 36%, Q220 29%). Royalty income of £3m grew from £2m in the comparative period. We believe that cash flow generation improved as evidenced by the 50p dividend declared.

FY21: PBT estimate increased by 37%

We increase our FY21 estimates for revenue by c 10% to £302.5m (y-o-y growth of 12%) and PBT by 37% to £115.9m (growth of 30%). We assume higher growth for Trade of c 15% and Online c 30%, and a lower decline for Retail of 8%. Our assumption for the gross margin increases to 72.7% (67.0% in FY20) and the operating margin pre-royalties increases to 34.8% (27.1% in FY20). We retain our assumption for royalty income of £11m in FY21.

Valuation: Looking for further upgrades

The share price has performed strongly in 2020 as the company has traded through COVID-19 much better than expected. On our updated forecast the P/E multiple for FY21 is 35.2x. The EV/sales multiple for FY21 is 10.6x, a premium to the previous high achieved in FY20 of 9.5x, which could suggest that the current share price is discounting further upgrades in market estimates.

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

302.5

322.2

Cost of sales

 

 

(37.0)

(37.4)

(43.7)

(64.2)

(83.3)

(89.1)

(82.7)

(87.3)

Gross profit

 

 

82.1

80.6

114.4

157.1

173.3

180.6

219.8

234.9

SG&A (expenses)

 

 

(67.2)

(69.7)

(83.6)

(92.4)

(103.4)

(107.4)

(114.4)

(121.4)

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

132.7

142.4

EBITDA

 

 

27.5

27.3

49.3

86.5

97.1

115.6

143.7

154.5

Depreciation and amortisation

 

 

(11.1)

(10.4)

(11.0)

(12.1)

(15.9)

(25.6)

(27.3)

(28.9)

Operating profit (before royalties and exceptionals)

 

14.9

10.9

30.8

64.7

69.8

73.2

105.4

113.4

Reported operating profit

 

 

16.5

16.9

38.3

74.3

81.2

90.0

116.4

125.5

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

115.9

125.1

Income tax expense (includes exceptionals)

 

 

(4.3)

(3.5)

(7.9)

(14.8)

(15.5)

(18.1)

(23.5)

(25.3)

Adjusted net income

 

 

12.2

13.5

30.5

59.5

65.8

71.3

92.4

99.8

Reported net income

 

 

12.3

13.5

30.5

59.5

65.8

71.3

92.4

99.8

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

283.6

306.1

Reported diluted EPS (p)

 

 

38.3

42.0

94.5

181.6

200.8

217.8

282.4

304.9

Adjusted diluted EPS (p)

 

 

38.1

42.0

94.5

181.6

200.8

217.8

282.4

304.9

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%

72.7%

72.9%

EBITDA margin (excl royalties)

 

 

21.8%

18.1%

26.5%

34.7%

33.4%

36.6%

43.9%

44.2%

EBITDA margin (incl royalties)

 

 

23.1%

23.1%

31.2%

39.1%

37.8%

42.9%

47.5%

48.0%

Operating margin (before royalties and exceptionals)

 

 

12.5%

9.2%

19.5%

29.2%

27.2%

27.1%

34.8%

35.2%

 

 

 

 

 

 

 

 

 

 

 

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

19.4

20.8

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

103.9

97.4

Cash and equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

74.9

108.6

Inventories

 

 

7.6

8.5

12.4

20.2

24.2

20.7

19.2

20.3

Trade and other receivables

 

 

9.4

10.1

13.0

15.5

18.8

19.6

22.0

23.4

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

116.3

152.5

Trade and other payables

 

 

(13.1)

(12.8)

(16.5)

(20.3)

(19.2)

(30.3)

(20.0)

(21.1)

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)

(33.9)

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

(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

161.7

190.3

 

 

 

 

 

 

 

 

 

 

 

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

 

 

EBIT

 

 

16.5

16.9

38.3

74.3

81.2

90.0

116.4

125.5

Depreciation and amortisation

 

 

11.1

10.4

10.2

12.2

15.9

25.0

27.3

28.9

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

(11.2)

(1.4)

Income taxes paid

 

 

(2.3)

(2.6)

(5.5)

(12.2)

(16.3)

(22.7)

(23.5)

(25.3)

Operating cash flow

 

 

23.3

24.2

43.9

70.1

72.5

104.5

109.5

128.3

Net capex and intangibles

 

 

(12.3)

(12.7)

(12.8)

(21.6)

(22.5)

(24.6)

(21.8)

(22.4)

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

22.0

33.7

Opening cash and cash equivalents

 

 

17.6

12.6

11.8

17.9

28.5

29.4

52.9

74.9

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

74.9

108.6

Closing net cash (including leases)

 

 

12.6

11.8

17.9

28.5

29.4

20.8

43.0

76.7

Source: Company accounts, 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.

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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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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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.

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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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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

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London, WC1V 7EE

United Kingdom

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