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Research: Consumer
Games Workshop Group’s (GAW’s) trading update for the year ending May 2022 indicates ongoing good demand following the standout performance of the prior year. The lower profitability (profit before tax margin) for FY22 versus FY21 reflects the already-flagged economy-wide inflationary cost pressures and internal investment, offset by a notable improvement in royalties income (£28m versus £16.3m FY21). The royalties income was the highest ever generated by the company, indicating the success it is having in leveraging its intellectual property. We trim our FY22 and FY23 profit before tax (PBT) estimates by c 2%. The prospective P/E multiple of 15.9x is below recent average multiples (17.2x FY17-21).
Games Workshop Group |
Strong revenue growth and royalties income |
FY22 trading update |
Consumer goods |
16 June 2022 |
Share price performance
Business description
Next events
Analysts
Games Workshop Group is a research client of Edison Investment Research Limited |
Games Workshop Group’s (GAW’s) trading update for the year ending May 2022 indicates ongoing good demand following the standout performance of the prior year. The lower profitability (profit before tax margin) for FY22 versus FY21 reflects the already-flagged economy-wide inflationary cost pressures and internal investment, offset by a notable improvement in royalties income (£28m versus £16.3m FY21). The royalties income was the highest ever generated by the company, indicating the success it is having in leveraging its intellectual property. We trim our FY22 and FY23 profit before tax (PBT) estimates by c 2%. The prospective P/E multiple of 15.9x is below recent average multiples (17.2x FY17-21).
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
05/20 |
269.7 |
89.4 |
217.8 |
145.0 |
28.6 |
2.3 |
05/21 |
353.2 |
150.9 |
370.5 |
235.0 |
16.8 |
3.8 |
05/22e |
385.5 |
155.7 |
380.4 |
235.0 |
16.4 |
3.8 |
05/23e |
407.3 |
160.5 |
390.9 |
275.0 |
15.9 |
4.4 |
Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY22: Strong revenue growth, royalties income
GAW’s FY22 revenue will be not less than £385m and PBT not less than £155m, higher revenue but marginally lower PBT than our prior estimates of £377.8m and £158.2m, respectively. The quoted £385m revenue implies a strong increase in the year-on-year growth rate to at least c 16% in H222 from c 3% in H122, against a much tougher comparative (+37% H221) than that for H122 (26% H121), indicating improving demand through the year. Using the quoted PBT of £155m and royalties income implies total cost growth of c 18% for the full year, including a lower staff profit share vs FY21, versus c 19% at the interim stage. In the first half, management flagged cost pressures from freight and input costs as well as investment in headcount and costs per head in order to support future growth. Dividends declared of 235p/share in FY22 were the same as FY21.
FY22 and FY23 PBT estimates trimmed
Ahead of the publication of full financial results we trim our PBT estimates for FY22 towards the indicated figure, and for FY23 by 2% to £160.5m (£163.5m previously). The FY23 estimate reflects the slightly lower FY22 base, a reduced assumption for gross margin (68% from 69% previously) and higher royalties income (£20m from £17m previously). We note the recent weakness in sterling versus the US dollar (current spot U$1.21/£ versus FY22 average U$1.35/£, source: Refinitiv) represents a potential tailwind for GAW’s revenue in FY23 but also a potential headwind for GAW’s costs.
Valuation: Below recent average P/E multiple
The share price has been weak due to general concerns about the outlook for consumer-facing companies given rising inflation and interest rates. On reduced estimates, the FY23 P/E of 15.9x is a discount to the average since FY17 of 17.2x, and the prospective dividend yield for FY23 is 4.4%.
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 |
385.5 |
407.3 |
Cost of sales |
|
|
(37.0) |
(37.4) |
(43.7) |
(64.2) |
(83.3) |
(89.1) |
(96.3) |
(123.4) |
(130.3) |
Gross profit |
|
|
82.1 |
80.6 |
114.4 |
157.1 |
173.3 |
180.6 |
256.9 |
262.2 |
276.9 |
SG&A (expenses) |
|
|
(67.2) |
(69.7) |
(83.6) |
(92.4) |
(103.4) |
(107.4) |
(121.5) |
(133.8) |
(135.8) |
Other operating income/(expense) |
|
|
1.5 |
5.9 |
7.5 |
9.6 |
11.4 |
16.8 |
16.3 |
28.0 |
20.0 |
EBITDA (excl royalties) |
|
|
26.0 |
21.3 |
41.8 |
76.8 |
85.7 |
98.8 |
162.0 |
155.5 |
169.6 |
EBITDA |
|
|
27.5 |
27.3 |
49.3 |
86.5 |
97.1 |
115.6 |
178.3 |
183.5 |
189.6 |
Depreciation and amortisation |
|
|
(11.1) |
(10.4) |
(11.0) |
(12.1) |
(15.9) |
(25.6) |
(26.6) |
(27.2) |
(28.5) |
Operating profit (before royalties and exceptionals) |
|
14.9 |
10.9 |
30.8 |
64.7 |
69.8 |
73.2 |
135.4 |
128.4 |
141.1 |
|
Reported operating profit |
|
|
16.5 |
16.9 |
38.3 |
74.3 |
81.2 |
90.0 |
151.7 |
156.4 |
161.1 |
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 |
155.7 |
160.5 |
Income tax expense (includes exceptionals) |
|
|
(4.3) |
(3.5) |
(7.9) |
(14.8) |
(15.5) |
(18.1) |
(28.9) |
(30.0) |
(31.0) |
Adjusted net income |
|
|
12.2 |
13.5 |
30.5 |
59.5 |
65.8 |
71.3 |
122.0 |
125.6 |
129.5 |
Reported net income |
|
|
12.3 |
13.5 |
30.5 |
59.5 |
65.8 |
71.3 |
122.0 |
125.6 |
129.5 |
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 |
382.6 |
393.2 |
Reported diluted EPS (p) |
|
|
38.3 |
42.0 |
94.5 |
181.6 |
200.8 |
217.8 |
370.5 |
380.4 |
390.9 |
Adjusted diluted EPS (p) |
|
|
38.1 |
42.0 |
94.5 |
181.6 |
200.8 |
217.8 |
370.5 |
380.4 |
390.9 |
DPS (p) |
|
|
52.0 |
40.0 |
74.0 |
126.0 |
155.0 |
145.0 |
235.0 |
235.0 |
275.0 |
Gross margin |
|
|
69.0% |
68.3% |
72.4% |
71.0% |
67.5% |
67.0% |
72.7% |
68.0% |
68.0% |
EBITDA margin (excl royalties) |
|
|
21.8% |
18.1% |
26.5% |
34.7% |
33.4% |
36.6% |
45.9% |
40.3% |
41.6% |
EBITDA margin (incl royalties) |
|
|
23.1% |
23.1% |
31.2% |
39.1% |
37.8% |
42.9% |
50.5% |
47.6% |
46.6% |
Operating margin (before royalties and exceptionals) |
|
|
12.5% |
9.2% |
19.5% |
29.2% |
27.2% |
27.1% |
38.3% |
33.3% |
34.7% |
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 |
30.0 |
35.8 |
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 |
151.5 |
165.2 |
Cash and equivalents |
|
|
12.6 |
11.8 |
17.9 |
28.5 |
29.4 |
52.9 |
85.2 |
116.2 |
138.8 |
Inventories |
|
|
7.6 |
8.5 |
12.4 |
20.2 |
24.2 |
20.7 |
27.5 |
35.2 |
37.2 |
Trade and other receivables |
|
|
9.4 |
10.1 |
13.0 |
15.5 |
18.8 |
19.6 |
30.6 |
33.4 |
35.3 |
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 |
185.9 |
212.4 |
Trade and other payables |
|
|
(13.1) |
(12.8) |
(16.5) |
(20.3) |
(19.2) |
(30.3) |
(35.4) |
(42.9) |
(44.3) |
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) |
(52.2) |
(53.6) |
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) |
(37.0) |
(35.6) |
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) |
(39.3) |
(37.9) |
Net assets |
|
|
51.5 |
53.2 |
62.8 |
89.3 |
106.5 |
133.7 |
196.3 |
246.0 |
286.1 |
CASH FLOW STATEMENT |
|
|
|
|
|
|
|
|
|
|
|
EBIT |
|
|
16.5 |
16.9 |
38.3 |
74.3 |
81.2 |
90.0 |
151.7 |
156.4 |
161.1 |
Depreciation and amortisation |
|
|
11.1 |
10.4 |
10.2 |
12.2 |
15.9 |
25.0 |
26.2 |
27.2 |
28.5 |
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) |
(3.1) |
(2.4) |
Income taxes paid |
|
|
(2.3) |
(2.6) |
(5.5) |
(12.2) |
(16.3) |
(22.7) |
(32.1) |
(30.0) |
(31.0) |
Operating cash flow |
|
|
23.3 |
24.2 |
43.9 |
70.1 |
72.5 |
104.5 |
132.7 |
151.6 |
157.4 |
Net capex and intangibles |
|
|
(12.3) |
(12.7) |
(12.8) |
(21.6) |
(22.5) |
(24.6) |
(30.0) |
(31.4) |
(32.2) |
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) |
(77.1) |
(90.6) |
Other financing activities |
|
|
0.0 |
0.0 |
(1.9) |
0.0 |
0.0 |
(10.3) |
(10.9) |
(11.4) |
(11.4) |
Net cash flow |
|
|
(4.8) |
(0.9) |
5.5 |
10.7 |
0.5 |
23.2 |
32.9 |
31.0 |
22.6 |
Opening cash and cash equivalents |
|
|
17.6 |
12.6 |
11.8 |
17.9 |
28.5 |
29.4 |
52.9 |
85.2 |
116.2 |
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 |
116.2 |
138.8 |
Closing net cash (including leases) |
|
|
12.6 |
11.8 |
17.9 |
28.5 |
29.4 |
20.8 |
38.2 |
70.6 |
94.6 |
Source: Games Workshop, Edison Investment Research
|
|
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