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Last close As at 09/06/2023
GBP92.55
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GBP3,046m
Research: Consumer
Games Workshop’s (GAW’s) H123 trading update indicates an encouraging start to the year, with reported revenue and operating profit representing more than half of our full year estimate. With around three-quarters of revenue earned overseas, GAW is a beneficiary of sterling’s weakness, notably versus the US dollar, which alone, we estimate, contributed c 6% to GAW’s core revenue growth in H123. Although sterling has recently strengthened, at current exchange rates it continues to provide good support for the remainder of the year. We upgrade our FY23 and FY24 revenue estimates by c 2% due to favourable exchange rates, but maintain our prior profit estimates. Our discounted cash flow-based valuation of £100/share is unchanged ahead of publication of H123 results.
Games Workshop Group |
Encouraging trading in H123 |
H123 trading update |
Consumer goods |
8 December 2022 |
Share price performance
Business description
Next events
Analysts
Games Workshop Group is a research client of Edison Investment Research Limited |
Games Workshop’s (GAW’s) H123 trading update indicates an encouraging start to the year, with reported revenue and operating profit representing more than half of our full year estimate. With around three-quarters of revenue earned overseas, GAW is a beneficiary of sterling’s weakness, notably versus the US dollar, which alone, we estimate, contributed c 6% to GAW’s core revenue growth in H123. Although sterling has recently strengthened, at current exchange rates it continues to provide good support for the remainder of the year. We upgrade our FY23 and FY24 revenue estimates by c 2% due to favourable exchange rates, but maintain our prior profit estimates. Our discounted cash flow-based valuation of £100/share is unchanged ahead of publication of H123 results.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
05/21 |
369.6 |
150.9 |
370.5 |
235.0 |
19.7 |
3.2 |
05/22 |
414.8 |
156.5 |
390.6 |
235.0 |
18.7 |
3.2 |
05/23e |
439.2 |
160.4 |
399.7 |
235.0 |
18.3 |
3.2 |
05/24e |
461.1 |
169.2 |
384.6 |
250.0 |
19.0 |
3.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H123: Revenue growth, cost inflation and investment
Total group revenue grew by at least 6% to ‘not less than £224m’ (H122: c £212m), while operating profit and profit before tax both declined by at most 6% to ‘not less than’ £83m (H122: £88.5m and £88.2m, respectively). Within total revenue there are quite divergent trends. Core revenue grew by at least 10% to ‘not less than £210m’ (H122: £192m), helped by weak sterling, while licensing, which is typically quite lumpy, declined by 30% to c £14m (H122: £20.1m) due to a tough comparative when there were a number of significant licensing deals signed. Total revenue growth is relatively consistent between Q1 and Q2, but licensing revenue was higher in absolute terms in Q2 (£11m) than Q1 (£3m). The core operating margin compression (we estimate more than 33% vs 36.3% in H122) indicates ongoing inflationary cost pressures, albeit the pressures appear lower than experienced in H122 (margin of 31.8%). While continuing to make good progress, management is rewarding staff with a profit share of £1,500 per employee and shareholders have seen very good cash returns through dividends of 165p/share so far in FY23.
Revenue estimates upgraded, profit estimates stable
We upgrade our revenue estimates for FY23 (by 2% to £439m) and FY24 (by 2% to £461m) but maintain our profit estimates, reflecting H123 trading and weak sterling.
Valuation: Rebound in valuation
The recent rebound in the share price has increased GAW’s prospective FY23 and FY24 P/E multiples to 18.3x and 19.0x (higher corporation tax rate), respectively, a modest premium to the average multiple since 2017 of 17.2x, but below recent high multiples (mid-20s+).
Exhibit 1: Financial summary
Year-end May |
£'m |
|
2019 |
2020 |
2021 |
2021R |
2022 |
2023e |
2024e |
|
|
|
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
INCOME STATEMENT |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
256.6 |
269.7 |
353.2 |
369.6 |
414.8 |
439.2 |
461.1 |
- Core revenue |
|
|
256.6 |
269.7 |
353.2 |
353.2 |
386.8 |
410.0 |
430.4 |
- Licensing revenue |
|
|
0.0 |
0.0 |
0.0 |
16.3 |
28.0 |
29.2 |
30.7 |
Cost of sales |
|
|
(83.3) |
(89.1) |
(96.3) |
(96.4) |
(127.4) |
(139.6) |
(139.9) |
Gross profit |
|
|
173.3 |
180.6 |
256.9 |
273.2 |
287.4 |
299.6 |
321.2 |
SG&A (expenses) |
|
|
(103.4) |
(107.4) |
(121.5) |
(121.5) |
(130.3) |
(135.5) |
(146.9) |
Other operating income/(expense) |
|
|
11.4 |
16.8 |
16.3 |
15.0 |
25.4 |
26.3 |
27.6 |
EBITDA (excl royalties) |
|
|
85.7 |
98.8 |
162.0 |
163.3 |
167.8 |
170.2 |
183.5 |
EBITDA |
|
|
97.1 |
115.6 |
178.3 |
178.3 |
193.2 |
196.5 |
211.1 |
Depreciation and amortisation |
|
|
(15.9) |
(25.6) |
(26.6) |
(26.6) |
(36.1) |
(35.4) |
(39.8) |
Operating profit (before royalties and exceptionals) |
|
|
69.8 |
73.2 |
135.4 |
136.7 |
131.7 |
134.9 |
143.7 |
Licensing |
|
|
11.4 |
16.8 |
16.3 |
15.0 |
25.4 |
26.3 |
27.6 |
Reported operating profit |
|
|
81.2 |
90.0 |
151.7 |
151.7 |
157.1 |
161.1 |
171.3 |
Finance income/(expense) |
|
|
0.1 |
(0.6) |
(0.8) |
(0.8) |
(0.6) |
(0.7) |
(2.0) |
Reported PBT |
|
|
81.3 |
89.4 |
150.9 |
150.9 |
156.5 |
160.4 |
169.2 |
Income tax expense (includes exceptionals) |
|
|
(15.5) |
(18.1) |
(28.9) |
(28.9) |
(28.1) |
(28.8) |
(42.3) |
Adjusted net income |
|
|
65.8 |
71.3 |
122.0 |
122.0 |
128.4 |
131.6 |
126.9 |
Reported net income |
|
|
65.8 |
71.3 |
122.0 |
122.0 |
128.4 |
131.6 |
126.9 |
WASC (m) |
|
|
32.438 |
32.602 |
32.733 |
32.733 |
32.813 |
32.872 |
32.936 |
Diluted average number of shares (m) |
|
|
32.785 |
32.736 |
32.927 |
32.927 |
32.873 |
32.932 |
32.996 |
Reported EPS (p) |
|
|
202.9 |
218.7 |
372.7 |
372.7 |
391.3 |
400.4 |
385.3 |
Reported diluted EPS (p) |
|
|
200.8 |
217.8 |
370.5 |
370.5 |
390.6 |
399.7 |
384.6 |
Adjusted diluted EPS (p) |
|
|
200.8 |
217.8 |
370.5 |
370.5 |
390.6 |
399.7 |
384.6 |
DPS (p) |
|
|
155.0 |
145.0 |
235.0 |
235.0 |
235.0 |
235.0 |
250.0 |
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
|
67.5% |
67.0% |
72.7% |
73.9% |
69.3% |
68.2% |
69.7% |
EBITDA margin (excl royalties) |
|
|
33.4% |
36.6% |
45.9% |
44.2% |
40.5% |
38.8% |
39.8% |
EBITDA margin (incl royalties) |
|
|
37.8% |
42.9% |
50.5% |
48.2% |
46.6% |
44.7% |
45.8% |
Operating margin |
|
|
31.6% |
33.4% |
43.0% |
41.0% |
37.9% |
36.7% |
37.1% |
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET |
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
35.3 |
42.0 |
49.8 |
49.8 |
55.0 |
57.4 |
59.2 |
Right-of-use assets |
|
|
|
31.9 |
46.0 |
46.0 |
48.1 |
46.9 |
45.7 |
Goodwill |
|
|
1.4 |
1.4 |
1.4 |
1.4 |
1.4 |
1.4 |
1.4 |
Intangible assets |
|
|
16.0 |
17.6 |
23.7 |
23.7 |
25.6 |
30.8 |
33.8 |
Other non-current assets |
|
|
11.7 |
16.4 |
16.4 |
16.4 |
37.2 |
37.2 |
37.2 |
Total non-current assets |
|
|
64.4 |
109.3 |
137.3 |
137.3 |
167.3 |
173.7 |
177.2 |
Cash and equivalents |
|
|
29.4 |
52.9 |
85.2 |
85.2 |
71.4 |
108.5 |
146.8 |
Inventories |
|
|
24.2 |
20.7 |
27.5 |
27.5 |
38.4 |
50.9 |
51.4 |
Trade and other receivables |
|
|
18.8 |
19.6 |
30.6 |
30.6 |
39.6 |
45.0 |
47.2 |
Other current assets |
|
|
0.8 |
0.2 |
1.1 |
1.1 |
4.4 |
4.4 |
4.4 |
Total current assets |
|
|
73.2 |
93.4 |
144.4 |
144.4 |
153.8 |
208.7 |
249.9 |
Trade and other payables |
|
|
(19.2) |
(30.3) |
(35.4) |
(35.4) |
(33.5) |
(41.1) |
(42.5) |
Borrowings |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Leases |
|
|
0.0 |
(8.3) |
(8.6) |
(8.6) |
(9.2) |
(9.2) |
(9.2) |
Other current liabilities |
|
|
(10.1) |
(4.5) |
(0.7) |
(0.7) |
(1.9) |
(1.9) |
(1.9) |
Total current liabilities |
|
|
(29.3) |
(43.1) |
(44.7) |
(44.7) |
(44.6) |
(52.2) |
(53.6) |
Borrowings |
|
|
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Leases |
|
|
0.0 |
(23.8) |
(38.4) |
(38.4) |
(39.7) |
(37.2) |
(34.1) |
Other non-current liabilities |
|
|
(1.9) |
(2.1) |
(2.3) |
(2.3) |
(2.1) |
(2.1) |
(2.1) |
Total non-current liabilities |
|
|
(1.9) |
(25.9) |
(40.7) |
(40.7) |
(41.8) |
(39.3) |
(36.2) |
Net assets |
|
|
106.5 |
133.7 |
196.3 |
196.3 |
234.7 |
290.8 |
337.4 |
|
|
|
|
|
|
|
|
|
|
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
|
EBIT |
|
|
81.2 |
90.0 |
151.7 |
151.7 |
157.1 |
161.1 |
171.3 |
Depreciation and amortisation |
|
|
15.9 |
25.0 |
26.2 |
26.2 |
34.8 |
35.4 |
39.8 |
Impairments |
|
|
0.0 |
0.6 |
0.4 |
0.4 |
1.3 |
0.0 |
0.0 |
Share-based payments |
|
|
0.3 |
0.5 |
1.2 |
1.2 |
1.6 |
1.8 |
1.9 |
Other adjustments |
|
|
0.3 |
0.3 |
0.1 |
0.1 |
0.3 |
0.0 |
0.0 |
Movements in working capital |
|
|
(9.0) |
10.8 |
(14.8) |
(14.8) |
(35.9) |
(10.2) |
(1.4) |
Income taxes paid |
|
|
(16.3) |
(22.7) |
(32.1) |
(32.1) |
(37.7) |
(28.8) |
(42.3) |
Operating cash flow |
|
|
72.5 |
104.5 |
132.7 |
132.7 |
121.5 |
159.3 |
169.3 |
Net capex and intangibles |
|
|
(22.5) |
(24.6) |
(30.0) |
(30.0) |
(32.3) |
(31.8) |
(33.4) |
Net interest |
|
|
0.1 |
0.1 |
0.2 |
0.2 |
0.2 |
(0.7) |
(2.0) |
Net proceeds from issue of shares |
|
|
0.7 |
0.8 |
1.4 |
1.4 |
1.8 |
0.0 |
0.0 |
Dividends paid |
|
|
(50.3) |
(47.3) |
(60.5) |
(60.5) |
(93.5) |
(77.2) |
(82.3) |
Other financing activities |
|
|
0.0 |
(10.3) |
(10.9) |
(10.9) |
(11.9) |
(12.5) |
(13.1) |
Net cash flow |
|
|
0.5 |
23.2 |
32.9 |
32.9 |
(14.2) |
37.1 |
38.4 |
Opening cash and cash equivalents |
|
|
28.5 |
29.4 |
52.9 |
85.2 |
85.2 |
71.4 |
108.5 |
Currency translation differences and other |
|
|
0.3 |
0.3 |
(0.6) |
(0.6) |
0.4 |
0.0 |
0.0 |
Closing cash and cash equivalents |
|
|
29.4 |
52.9 |
85.2 |
117.5 |
71.4 |
108.5 |
146.8 |
Closing net cash (including leases) |
|
|
29.4 |
20.8 |
38.2 |
38.2 |
22.5 |
62.1 |
103.6 |
Source: GAW, Edison Investment Research. Note: R is restated for change in disclosure re licensing revenue and gross profit.
|
|
Research: Healthcare
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