Games Workshop Group — H122 helped by licensing income

Games Workshop Group (LSE: GAW)

Last close As at 01/11/2024

GBP119.60

20.00 (0.17%)

Market capitalisation

GBP3,942m

More on this equity

Research: Consumer

Games Workshop Group — H122 helped by licensing income

With profit in line with expectations, Games Workshop Group’s (GAW) H122 trading update is reassuring. The previously flagged forex and freight cost pressures have negatively affected pre-licensing profit. This was partially offset by an exceptional level of licensing income versus GAW’s trading history. Our FY22 forecasts are unchanged ahead of the publication of H122 results. The FY22e P/E of 25.0x is in line with GAW’s recent average multiple. Our DCF-based valuation remains £129 per share.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Games Workshop Group

H122 helped by licensing income

H122 trading update

Consumer goods

9 December 2021

Price

9,690p

Market cap

£3,178m

Net cash (£m) at 31 May 2021 (excluding lease liabilities)

85.2

Shares in issue

32.8m

Free float

97%

Code

GAW

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.3)

(19.1)

(0.7)

Rel (local)

(0.4)

(20.8)

(12.1)

52-week high/low

12,220p

8,975p

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

H122 results

11 January 2022

Analysts

Russell Pointon

+44 (0)20 3077 5700

Sara Welford

+44 (0)20 3077 5700

Games Workshop Group is a research client of Edison Investment Research Limited

With profit in line with expectations, Games Workshop Group’s (GAW) H122 trading update is reassuring. The previously flagged forex and freight cost pressures have negatively affected pre-licensing profit. This was partially offset by an exceptional level of licensing income versus GAW’s trading history. Our FY22 forecasts are unchanged ahead of the publication of H122 results. The FY22e P/E of 25.0x is in line with GAW’s recent average multiple. Our DCF-based valuation remains £129 per share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

05/20

269.7

89.4

217.8

145.0

44.5

1.5

05/21

353.2

150.9

370.5

235.0

26.2

2.4

05/22e

376.9

158.1

387.1

250.0

25.0

2.6

05/23e

395.3

163.4

398.8

275.0

24.3

2.8

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

H122: In line with management’s expectations

Indicated H122 PBT of not less than £86m is at most 6% below H121’s £91.6m, with a significant absolute y-o-y improvement of more than £10m in licensing income (typically quite lumpy) offset by an absolute c £15m decline in operating profit pre-licensing. Licensing income of £19m is higher than GAW has earned in any year previously (previous peak was £16.8m in FY20). The decline in operating profit pre-licensing is mainly due to forex, and higher carriage and staff costs (more people and costs per head). In addition, a marginally higher amount (£6.9m versus £6.2m in H121) has been awarded to staff profit share. We estimate that total costs (cost of goods and opex) increased y-o-y by a high-teens percentage. Reported revenue growth of at least c 2% to £190m+ includes a recovery in Retail (majority of shops now open) and ongoing strength in Trade, a negative forex effect of c 4%, and a strong H121 comparative. H121’s 26% y-o-y revenue growth included Online (+88%) and Trade (+33%) offset by Retail (-19%). H122’s declared dividends of 100p compare with H121’s 80p, indicating management’s comfort with cash generation.

FY22: Forecasts unchanged

We make no changes to our FY22 forecasts ahead of the H122 results in January 2022. However, the shape of forecasts may change with a greater contribution from licensing income (£17m previously forecast versus £19m in H121), to be offset by lower operating profit pre-licensing due to the increase in total costs. Our FY22 revenue forecast of c £377m requires a lower absolute H2 revenue contribution of c £187m than H121’s £190m+, and operating income pre-licensing of c £142m requires a decline in absolute total costs (cost of goods and opex) versus H121.

Valuation: DCF-based valuation £129/share

With no change to our forecasts, we reiterate our DCF-based valuation of £129/share. The recent decline in the share price, 16% since our last update, has reduced the FY22e PE multiple to 25.0x, in line with the average multiple of recent years, but below its peak multiple of over 30x.

Exhibit 1: Financial summary

Year-end May

£m

 

2015

2016

2017

2018

2019

2020

2021

2022e

2023e

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

 

119.1

118.1

158.1

221.3

256.6

269.7

353.2

376.9

395.3

Cost of sales

 

 

(37.0)

(37.4)

(43.7)

(64.2)

(83.3)

(89.1)

(96.3)

(113.1)

(122.5)

Gross profit

 

 

82.1

80.6

114.4

157.1

173.3

180.6

256.9

263.8

272.8

SG&A (expenses)

 

 

(67.2)

(69.7)

(83.6)

(92.4)

(103.4)

(107.4)

(121.5)

(122.0)

(125.7)

Other operating income/(expense)

 

 

1.5

5.9

7.5

9.6

11.4

16.8

16.3

17.0

17.0

Exceptionals and adjustments

 

 

0

0

0

0

0

0

0

0

0

EBITDA (excluding royalties)

 

 

26.0

21.3

41.8

76.8

85.7

98.8

162.0

168.9

175.5

EBITDA

 

 

27.5

27.3

49.3

86.5

97.1

115.6

178.3

185.9

192.5

Depreciation and amortisation

 

 

(11.1)

(10.4)

(11.0)

(12.1)

(15.9)

(25.6)

(26.6)

(27.1)

(28.4)

Operating profit (before royalties and exceptionals)

 

14.9

10.9

30.8

64.7

69.8

73.2

135.4

141.8

147.1

Reported operating profit

 

 

16.5

16.9

38.3

74.3

81.2

90.0

151.7

158.8

164.1

Finance income/(expense)

 

 

0.1

0.1

0.1

(0.0)

0.1

(0.6)

(0.8)

(0.7)

(0.7)

Reported PBT

 

 

16.6

16.9

38.4

74.3

81.3

89.4

150.9

158.1

163.4

Income tax expense (includes exceptionals)

 

 

(4.3)

(3.5)

(7.9)

(14.8)

(15.5)

(18.1)

(28.9)

(30.3)

(31.3)

Adjusted net income

 

 

12.2

13.5

30.5

59.5

65.8

71.3

122.0

127.8

132.1

Reported net income

 

 

12.3

13.5

30.5

59.5

65.8

71.3

122.0

127.8

132.1

WASC (m)

 

 

31.975

32.093

32.126

32.258

32.438

32.602

32.733

32.827

32.928

Diluted average number of shares (m)

 

 

32.025

32.150

32.325

32.732

32.785

32.736

32.927

33.021

33.122

Reported EPS (p)

 

 

38.3

42.1

95.1

184.3

202.9

218.7

372.7

389.4

401.2

Reported diluted EPS (p)

 

 

38.3

42.0

94.5

181.6

200.8

217.8

370.5

387.1

398.8

Adjusted diluted EPS (p)

 

 

38.1

42.0

94.5

181.6

200.8

217.8

370.5

387.1

398.8

DPS (p)

 

 

52.0

40.0

74.0

126.0

155.0

145.0

235.0

250.0

275.0

Gross margin

 

 

69.0%

68.3%

72.4%

71.0%

67.5%

67.0%

72.7%

70.0%

69.0%

EBITDA margin (excl royalties)

 

 

21.8%

18.1%

26.5%

34.7%

33.4%

36.6%

45.9%

44.8%

44.4%

EBITDA margin (incl royalties)

 

 

23.1%

23.1%

31.2%

39.1%

37.8%

42.9%

50.5%

49.3%

48.7%

Operating margin (before royalties and exceptionals)

 

 

12.5%

9.2%

19.5%

29.2%

27.2%

27.1%

38.3%

37.6%

37.2%

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

22.7

22.6

22.1

30.1

35.3

42.0

49.8

58.7

67.6

Right-of-use assets

 

 

 

 

 

 

 

31.9

46.0

45.0

44.0

Goodwill

 

 

1.4

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

23.7

29.7

35.2

Other non-current assets

 

 

4.8

4.1

6.5

7.8

11.7

16.4

16.4

16.4

16.4

Total non-current assets

 

 

37.2

38.7

43.0

53.5

64.4

109.3

137.3

151.2

164.6

Cash and equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

85.2

113.8

140.2

Inventories

 

 

7.6

8.5

12.4

20.2

24.2

20.7

27.5

32.3

35.0

Trade and other receivables

 

 

9.4

10.1

13.0

15.5

18.8

19.6

30.6

32.7

34.2

Other current assets

 

 

0.6

0.7

0.6

0.5

0.8

0.2

1.1

1.1

1.1

Total current assets

 

 

30.2

31.2

43.9

64.7

73.2

93.4

144.4

179.8

210.6

Trade and other payables

 

 

(13.1)

(12.8)

(16.5)

(20.3)

(19.2)

(30.3)

(35.4)

(38.7)

(40.9)

Borrowings

 

 

0.0

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)

(8.6)

(8.6)

(8.6)

Other current liabilities

 

 

(2.0)

(2.7)

(6.5)

(7.3)

(10.1)

(4.5)

(0.7)

(0.7)

(0.7)

Total current liabilities

 

 

(15.1)

(15.6)

(23.0)

(27.6)

(29.3)

(43.1)

(44.7)

(48.0)

(50.2)

Borrowings

 

 

0.0

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)

(38.4)

(37.5)

(36.6)

Other non-current liabilities

 

 

(0.8)

(1.1)

(1.0)

(1.2)

(1.9)

(2.1)

(2.3)

(2.3)

(2.3)

Total non-current liabilities

 

 

(0.8)

(1.1)

(1.0)

(1.2)

(1.9)

(25.9)

(40.7)

(39.8)

(38.9)

Net assets

 

 

51.5

53.2

62.8

89.3

106.5

133.7

196.3

243.2

286.0

CASH FLOW STATEMENT

 

 

 

 

 

 

 

 

 

 

 

EBIT

 

 

16.5

16.9

38.3

74.3

81.2

90.0

151.7

158.8

164.1

Depreciation and amortisation

 

 

11.1

10.4

10.2

12.2

15.9

25.0

26.2

27.1

28.4

Impairments

 

 

0.0

0.0

0.8

(0.0)

0.0

0.6

0.4

0.0

0.0

Share-based payments

 

 

0.2

0.2

0.2

0.2

0.3

0.5

1.2

1.2

1.2

Other adjustments

 

 

0.1

0.1

0.1

0.1

0.3

0.3

0.1

0.0

0.0

Movements in working capital

 

 

(2.3)

(0.8)

(0.2)

(4.4)

(9.0)

10.8

(14.8)

(3.5)

(2.1)

Income taxes paid

 

 

(2.3)

(2.6)

(5.5)

(12.2)

(16.3)

(22.7)

(32.1)

(30.3)

(31.3)

Operating cash flow

 

 

23.3

24.2

43.9

70.1

72.5

104.5

132.7

153.4

160.3

Net capex and intangibles

 

 

(12.3)

(12.7)

(12.8)

(21.6)

(22.5)

(24.6)

(30.0)

(31.1)

(31.7)

Net interest

 

 

0.1

0.1

0.1

(0.0)

0.1

0.1

0.2

(0.7)

(0.7)

Net proceeds from issue of shares

 

 

0.7

0.3

0.1

0.9

0.7

0.8

1.4

0.0

0.0

Dividends paid

 

 

(16.6)

(12.8)

(23.8)

(38.7)

(50.3)

(47.3)

(60.5)

(82.1)

(90.6)

Other financing activities

 

 

0.0

0.0

(1.9)

0.0

0.0

(10.3)

(10.9)

(10.9)

(10.9)

Net cash flow

 

 

(4.8)

(0.9)

5.5

10.7

0.5

23.2

32.9

28.6

26.4

Opening cash and cash equivalents

 

 

17.6

12.6

11.8

17.9

28.5

29.4

52.9

85.2

113.8

Currency translation differences and other

 

 

(0.2)

0.1

0.6

(0.1)

0.3

0.3

(0.6)

0.0

0.0

Closing cash and cash equivalents

 

 

12.6

11.8

17.9

28.5

29.4

52.9

85.2

113.8

140.2

Closing net cash (including leases)

 

 

12.6

11.8

17.9

28.5

29.4

20.8

38.2

67.7

95.0

Source: Games Workshop, Edison Investment Research

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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 £60,000 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.

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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 £60,000 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.

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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

1185 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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Molten Ventures — Let the good times keep rolling

In H122, Molten Ventures saw a continuation of the strong performance reported in FY21, with 27% fair value growth in the period taking gross portfolio value to £1,350m. Management reconfirmed its expectation for c 35% fair value growth for FY22 ‘subject to wider market conditions’, well ahead of management’s initial guidance of below-trend 15% growth. H122 NAV per share increased by 19% to 887p per share, with the five-year CAGR now over 20%. With an uncertain outlook, Molten Ventures offers a diversified portfolio across multiple technology segments, with its funds’ strategy capturing unique deal flow, delivering the potential for returns uncorrelated to the wider market. Management expects strong markets to persist for at least the next 12–18 months, with the launch of the growth fund a key focus for 2022, now that the preparatory work is complete.

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