Temple-nest-highres

Strong five-month trading update

Games Workshop Group 8 November 2019 Update
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Games Workshop Group

Strong five-month trading update

Trading update

Consumer goods

8 November 2019

Price

5,085p

Market cap

£1,649m

Net cash (£m) at 2 June 2019

29.4

Shares in issue

32.4m

Free float

95%

Code

GAW

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.0)

(3.4)

43.7

Rel (local)

(8.0)

(6.8)

37.8

52-week high/low

5,085p

2,800p

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

Interim results

January 2020

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 (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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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


General disclaimer and copyright

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.

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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

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.

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.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 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

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

1,185 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

General disclaimer and copyright

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.

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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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.

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.

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.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 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

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

1,185 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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