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Research: Consumer
Games Workshop Group’s (GAW’s) FY23 trading update indicates an improvement in underlying trading in the latter months of the period and the expected easing of cost pressures. The strength of the improvement is evident in the fact that FY23 PBT is greater than both our previous FY23 and FY24 estimates. We upgrade our FY24 PBT estimates by c 4%, which incorporates an underlying upgrade offset by a new foreign exchange headwind.
Games Workshop Group |
FY23 profit ahead of previous FY24 estimates |
FY23 trading update |
Consumer goods |
15 June 2023 |
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Games Workshop Group is a research client of Edison Investment Research Limited |
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Games Workshop Group’s (GAW’s) FY23 trading update indicates an improvement in underlying trading in the latter months of the period and the expected easing of cost pressures. The strength of the improvement is evident in the fact that FY23 PBT is greater than both our previous FY23 and FY24 estimates. We upgrade our FY24 PBT estimates by c 4%, which incorporates an underlying upgrade offset by a new foreign exchange headwind.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
05/21 |
369.6 |
150.9 |
370.5 |
235.0 |
27.9 |
2.3 |
05/22 |
414.8 |
156.5 |
390.6 |
235.0 |
26.5 |
2.3 |
05/23e |
465.0 |
170.0 |
412.9 |
415.0 |
25.1 |
4.0 |
05/24e |
487.2 |
175.2 |
397.6 |
415.0 |
26.0 |
4.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Revenue momentum, lower cost pressures
GAW has reported that group revenue for the 52 weeks ending 28 May 2023 will be not less than £465m (FY22: c £415m), ie y-o-y growth of at least 12%, indicating a significant acceleration to 17%+ growth in H223 from 7% in H123. Both core (‘not less than £440m’ versus our estimate of c £418m) and licensing revenue (£25m versus our c £29m estimate) enjoyed better y-o-y growth in H223 versus H123, to give full-year growth of 14% and a decline of 11%, respectively. Sterling weakness continued to support revenue growth but at a declining rate through the year, therefore the underlying improvement in trading was at a greater rate than headline growth. Reported PBT of ‘not less than £170m’ confirms the expected easing of cost pressures as the year progressed.
FY23 profit ahead of previous FY24 estimates
Indicated preliminary numbers are above our previous estimates for FY23 revenue of c £447m and PBT of c £160m, and even our FY24 estimates of c £461m and c £169m respectively. Ahead of the publication of full financial statements, we increase our FY23 estimates to the low end of the indicated range and upgrade FY24 PBT estimates by c 4% to c £175.2m. The latter incorporates an underlying upgrade to core growth offset by lower licensing income in FY24 than previously due to the lower reported FY23 revenue and a new currency headwind. The recent strength in sterling to US$/£1.26 (FY23e average US$/£1.20) and €/£1.17 (FY23e average €/£1.15) means that currency translation has swung to a potential headwind for FY24 forecasts, which is important given that c 77% of FY22 core revenue was earned from overseas markets. We note that EPS growth in both years is dampened by a higher corporate tax rate.
Valuation: P/E multiple within historical ranges
The FY24e P/E multiple has increased to 26.0x, which compares to the average since FY17 of 18.4x and peak multiples of more than 30x. Management’s attractive divided policy implies an estimated dividend yield of 4.0%.
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 |
465.0 |
487.2 |
- Core revenue |
|
|
256.6 |
269.7 |
353.2 |
353.2 |
386.8 |
440.0 |
460.2 |
- Licensing revenue |
|
|
0.0 |
0.0 |
0.0 |
16.3 |
28.0 |
25.0 |
27.0 |
Cost of sales |
|
|
(83.3) |
(89.1) |
(96.3) |
(96.4) |
(127.4) |
(145.2) |
(142.7) |
Gross profit |
|
|
173.3 |
180.6 |
256.9 |
273.2 |
287.4 |
319.8 |
344.5 |
SG&A (expenses) |
|
|
(103.4) |
(107.4) |
(121.5) |
(121.5) |
(130.3) |
(146.6) |
(165.9) |
Other operating income/(expense) |
|
|
11.4 |
16.8 |
16.3 |
15.0 |
25.4 |
22.6 |
24.3 |
EBITDA (excluding royalties) |
|
|
85.7 |
98.8 |
162.0 |
163.3 |
167.8 |
183.5 |
191.4 |
EBITDA |
|
|
97.1 |
115.6 |
178.3 |
178.3 |
193.2 |
206.1 |
215.7 |
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 |
148.2 |
151.6 |
Licensing |
|
|
11.4 |
16.8 |
16.3 |
15.0 |
25.4 |
22.6 |
24.3 |
Reported operating profit |
|
|
81.2 |
90.0 |
151.7 |
151.7 |
157.1 |
170.7 |
175.9 |
Finance income/(expense) |
|
|
0.1 |
(0.6) |
(0.8) |
(0.8) |
(0.6) |
(0.7) |
(0.7) |
Reported PBT |
|
|
81.3 |
89.4 |
150.9 |
150.9 |
156.5 |
170.0 |
175.2 |
Income tax expense (includes exceptionals) |
|
|
(15.5) |
(18.1) |
(28.9) |
(28.9) |
(28.1) |
(34.0) |
(43.8) |
Adjusted net income |
|
|
65.8 |
71.3 |
122.0 |
122.0 |
128.4 |
136.0 |
131.3 |
Reported net income |
|
|
65.8 |
71.3 |
122.0 |
122.0 |
128.4 |
136.0 |
131.5 |
WASC (m) |
|
|
32.438 |
32.602 |
32.733 |
32.733 |
32.813 |
32.877 |
32.951 |
Diluted average number of shares (m) |
|
|
32.785 |
32.736 |
32.927 |
32.927 |
32.873 |
32.937 |
33.011 |
Reported EPS (p) |
|
|
202.9 |
218.7 |
372.7 |
372.7 |
391.3 |
413.7 |
398.9 |
Reported diluted EPS (p) |
|
|
200.8 |
217.8 |
370.5 |
370.5 |
390.6 |
412.9 |
398.2 |
Adjusted diluted EPS (p) |
|
|
200.8 |
217.8 |
370.5 |
370.5 |
390.6 |
412.9 |
397.6 |
DPS (p) |
|
|
155.0 |
145.0 |
235.0 |
235.0 |
235.0 |
415.0 |
415.0 |
Gross margin |
|
|
67.5% |
67.0% |
72.7% |
73.9% |
69.3% |
68.8% |
70.7% |
EBITDA margin (excluding royalties) |
|
|
33.4% |
36.6% |
45.9% |
44.2% |
40.5% |
39.5% |
39.3% |
EBITDA margin (including royalties) |
|
|
37.8% |
42.9% |
50.5% |
48.2% |
46.6% |
44.3% |
44.3% |
Operating margin |
|
|
31.6% |
33.4% |
43.0% |
41.0% |
37.9% |
36.7% |
36.1% |
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 |
25.2 |
25.2 |
Total non-current assets |
|
|
64.4 |
109.3 |
137.3 |
137.3 |
167.3 |
161.7 |
165.2 |
Cash and equivalents |
|
|
29.4 |
52.9 |
85.2 |
85.2 |
71.4 |
64.5 |
53.2 |
Inventories |
|
|
24.2 |
20.7 |
27.5 |
27.5 |
38.4 |
51.3 |
51.1 |
Trade and other receivables |
|
|
18.8 |
19.6 |
30.6 |
30.6 |
39.6 |
47.6 |
49.9 |
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 |
167.8 |
158.6 |
Trade and other payables |
|
|
(19.2) |
(30.3) |
(35.4) |
(35.4) |
(33.5) |
(43.1) |
(45.2) |
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) |
(54.2) |
(56.3) |
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 |
236.0 |
231.3 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
|
EBIT |
|
|
81.2 |
90.0 |
151.7 |
151.7 |
157.1 |
170.7 |
175.9 |
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) |
0.7 |
0.1 |
Income taxes paid |
|
|
(16.3) |
(22.7) |
(32.1) |
(32.1) |
(37.7) |
(34.0) |
(43.8) |
Operating cash flow |
|
|
72.5 |
104.5 |
132.7 |
132.7 |
121.5 |
174.5 |
174.0 |
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) |
(136.4) |
(136.7) |
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) |
(6.9) |
(11.3) |
Opening cash and cash equivalents |
|
|
28.5 |
29.4 |
52.9 |
85.2 |
85.2 |
71.4 |
64.5 |
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 |
64.5 |
53.2 |
Closing net cash (including leases) |
|
|
29.4 |
20.8 |
38.2 |
38.2 |
22.5 |
18.1 |
9.9 |
Source: Games Workshop Group accounts, Edison Investment Research
|
|
Research: Investment Companies
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