Games Workshop Group |
Strong five-month trading update |
Trading update |
Consumer goods |
8 November 2019 |
Share price performance
Business description
Next events
Analysts
Games Workshop Group is a research client of Edison Investment Research Limited |
Games Workshop (GAW) has published a trading statement for the first five months of FY20, highlighting an acceleration in revenue growth to c 12% (versus our previous forecast for the year of c 4%), strong margin growth and encouraging signs with respect to its ability to leverage its intellectual property through royalty income. Our PBT estimates increase by c 9% for FY20 and FY21, and our DCF-based valuation increases by 10% to 5,176p.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
05/18 |
221.3 |
74.3 |
181.6 |
126 |
28.0 |
2.5 |
05/19 |
256.6 |
81.3 |
200.8 |
155 |
25.3 |
3.0 |
05/20e |
278.5 |
92.7 |
228.8 |
177 |
22.2 |
3.5 |
05/21e |
292.5 |
98.2 |
242.5 |
187 |
21.0 |
3.7 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Five-month trading update: A strong start
GAW has published a trading statement for the five-month period ending 3 November 2019. Sales for H120 will be not less than £140m and profit before tax will be not less than £55m. This implies revenue growth of c 12% (from £125.2m in H119) and PBT growth of c 35% (from £40.8m in H119). There is no detail on the relative performance of the three reportable segments: Trade, Retail and Online. Royalty income is ‘significantly ahead’ of the prior year; we assume this means being just less than double the £5.5m of H119 at c £10.5m in H120, representing £5.0m of the incremental c £14.5m of PBT. This is due to the timing of signing licences and the change in accounting standard, making income more lumpy. Therefore, the incremental sales of at least £14.8m (£140m - £125.2m) generated an incremental PBT (ex-royalty income) of £9.5m (£14.5m - 5.0m). This implies better than average growth for the higher-margin segments, Trade and Online.
Forecasts: Upgraded by 9% for FY20 and FY21
In the absence of detailed disclosure until the interim results, we assume that all three segments grow by c 12% in H120. We continue to assume similar revenue growth in H220 to previously, ie underlying growth of c 5% for Trade and Retail. Our gross margin assumption increases to 69.4% for FY20 versus 68% previously. We cautiously assume lower royalty income year-on-year in H220 than H219 given the strong performance in H120, ie FY20 increases to £13.4m from £11.4m previously. As a result, our PBT forecast for FY20 increases from £85.2m to £92.7m, and for FY21 from £89.8m to £98.2m, increases of c 9%. EPS in FY20 increases from 210.3p to 228.8p, and in FY21 increases from 221.7p to 242.5p.
Valuation: DCF-based valuation increases by 10%
The shares had marginally underperformed the wider market over the last three months, having performed strongly earlier in the year. At 5,085p, the P/E is 22.2x for FY20e and 21.0x for FY21e. Our DCF-based valuation increases to 5,176p from 4,703p. We forecast FY20 net cash of £41.5m, supporting the 3.5% dividend yield.
Exhibit 1: Financial summary
Accounts: IFRS, year-end: May, £000s |
|
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
|
INCOME STATEMENT |
|
|
|
|
|
|
|
|
Total revenues |
|
|
118,069 |
158,114 |
221,304 |
256,574 |
278,472 |
292,503 |
Cost of sales |
|
|
(37,438) |
(43,691) |
(64,219) |
(83,306) |
(85,147) |
(87,975) |
Gross profit |
|
|
80,631 |
114,423 |
157,085 |
173,268 |
193,324 |
204,528 |
Gross profit margin |
|
|
68.3% |
72.4% |
71.0% |
67.5% |
69.4% |
69.9% |
SG&A (expenses) |
|
|
(69,710) |
(83,591) |
(92,383) |
(103,434) |
(114,173) |
(119,926) |
Other income/(expense) |
|
|
5,939 |
7,491 |
9,617 |
11,365 |
13,369 |
13,369 |
Exceptionals and adjustments |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
Reported EBIT |
|
|
16,860 |
38,323 |
74,319 |
81,199 |
92,519 |
97,970 |
Report EBIT margin |
|
|
14.3% |
24.2% |
33.6% |
31.6% |
33.2% |
33.5% |
Finance income/(expense) |
|
|
88 |
80 |
(49) |
97 |
139 |
234 |
Reported PBT |
|
|
16,948 |
38,403 |
74,270 |
81,296 |
92,658 |
98,204 |
Income tax expense (includes exceptionals) |
|
|
(3,452) |
(7,856) |
(14,815) |
(15,475) |
(17,638) |
(18,694) |
Reported net income |
|
|
13,496 |
30,547 |
59,455 |
65,821 |
75,020 |
79,511 |
Basic average number of shares, m |
|
|
32,093 |
32,126 |
32,258 |
32,438 |
32,438 |
32,438 |
Basic EPS (p) |
|
|
42.1 |
95.1 |
184.3 |
202.9 |
231.3 |
245.1 |
Adjusted EBITDA |
|
|
27,250 |
48,547 |
86,482 |
97,089 |
110,850 |
116,986 |
Adjusted EBIT |
|
|
16,860 |
38,323 |
74,319 |
81,199 |
92,519 |
97,970 |
Adjusted PBT |
|
|
16,948 |
38,403 |
74,270 |
81,296 |
92,658 |
98,204 |
Adjusted EPS (p) |
|
|
42 |
95 |
184 |
203 |
231 |
245 |
Adjusted diluted EPS (p) |
|
|
42 |
94 |
182 |
201 |
229 |
243 |
BALANCE SHEET |
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
22,621 |
22,132 |
30,072 |
35,303 |
39,807 |
37,971 |
Goodwill |
|
|
1,433 |
1,433 |
1,433 |
1,433 |
1,433 |
1,433 |
Intangible assets |
|
|
10,501 |
12,917 |
14,195 |
16,004 |
14,669 |
13,988 |
Other non-current assets |
|
|
4,148 |
6,480 |
7,780 |
11,667 |
11,667 |
11,667 |
Total non-current assets |
|
|
38,703 |
42,962 |
53,480 |
64,407 |
67,576 |
65,060 |
Cash and equivalents |
|
|
11,775 |
17,910 |
28,545 |
29,371 |
41,467 |
61,867 |
Inventories |
|
|
8,540 |
12,421 |
20,159 |
24,192 |
25,802 |
26,659 |
Trade and other receivables |
|
|
10,120 |
12,976 |
15,502 |
18,796 |
20,400 |
21,428 |
Other current assets |
|
|
725 |
596 |
457 |
814 |
814 |
814 |
Total current assets |
|
|
31,160 |
43,903 |
64,663 |
73,173 |
88,484 |
110,768 |
Other non-current liabilities |
|
|
1,109 |
989 |
1,204 |
1,854 |
1,854 |
1,854 |
Total non-current liabilities |
|
|
1,109 |
989 |
1,204 |
1,854 |
1,854 |
1,854 |
Trade and other payables |
|
|
12,844 |
16,515 |
20,298 |
19,199 |
19,623 |
20,275 |
Other current liabilities |
|
|
2,747 |
6,529 |
8,519 |
10,054 |
10,054 |
10,054 |
Total current liabilities |
|
|
15,591 |
23,044 |
28,817 |
29,253 |
29,677 |
30,329 |
Equity attributable to company |
|
|
53,163 |
62,832 |
88,122 |
106,473 |
124,528 |
143,644 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
EBIT |
|
|
16,860 |
38,323 |
74,319 |
81,199 |
92,519 |
97,970 |
Depreciation and amortisation |
|
|
10,457 |
11,016 |
12,155 |
16,086 |
18,331 |
19,017 |
Share based payments |
|
|
193 |
160 |
204 |
339 |
339 |
339 |
Other adjustments |
|
|
28 |
111 |
40 |
144 |
0 |
0 |
Movements in working capital |
|
|
(756) |
(240) |
(4,386) |
(8,992) |
(2,790) |
(1,233) |
Interest paid / received |
|
|
83 |
83 |
(39) |
97 |
139 |
234 |
Income taxes paid |
|
|
(2,552) |
(5,482) |
(12,227) |
(16,296) |
(17,638) |
(18,694) |
Cash from operations (CFO) |
|
|
24,313 |
43,971 |
70,066 |
72,577 |
90,900 |
97,633 |
Capex |
|
|
(12,663) |
(12,844) |
(21,580) |
(22,488) |
(21,500) |
(16,500) |
FCF |
|
|
11,650 |
31,127 |
48,486 |
50,089 |
69,400 |
81,133 |
Cash used in investing activities (CFIA) |
|
|
(12,663) |
(12,844) |
(21,580) |
(22,488) |
(21,500) |
(16,500) |
Net proceeds from issue of shares |
|
|
304 |
81 |
982 |
718 |
0 |
0 |
Dividends paid |
|
|
(12,837) |
(23,801) |
(38,701) |
(50,277) |
(57,304) |
(60,734) |
Other financing activities |
|
|
0 |
(1,901) |
0 |
0 |
0 |
0 |
Cash from financing activities (CFF) |
|
|
(12,533) |
(25,621) |
(37,719) |
(49,559) |
(57,304) |
(60,734) |
Increase/(decrease) in cash and equivalents |
|
|
(883) |
5,506 |
10,767 |
540 |
12,096 |
20,399 |
Cash and equivalents at end of period |
|
|
11,775 |
17,910 |
28,545 |
29,371 |
41,467 |
61,867 |
Net (debt)/cash |
|
|
11,775 |
17,910 |
28,545 |
29,371 |
41,467 |
61,867 |
Movement in net (debt)/cash over period |
|
|
(786) |
6,135 |
10,635 |
826 |
12,096 |
20,399 |
Source: Company accounts, Edison Investment Research
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