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Last close As at 30/03/2023
GBP93.80
▲ 170.00 (1.85%)
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GBP2,877m
Research: Consumer
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.
Games Workshop Group |
H122 helped by licensing income |
H122 trading update |
Consumer goods |
9 December 2021 |
Share price performance
Business description
Next events
Analysts
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* |
EPS* |
DPS |
P/E |
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
|
|
Research: Financials
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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