Games Workshop dividend and share slump generates buying interest
21st September 2022 15:41
by Graeme Evans from interactive investor
A fresh slump in share price to around multi-year lows had investors sniffing around the Warhammer firm. A video game developer is having better luck.
A 20% dividend hike failed to quell the attack on Games Workshop (LSE:GAW) shares today as the frustrating year for fans of the FTSE 250-listed Warhammer firm continued.
The widely held stock, which began 2022 near to 10,000p, slumped 16% at one point to as low as 5,891p before a rebound left the Nottingham-based firm at around 6,370p.
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The latest selling pressure followed a £6 million drop in profits to £39 million for the three months to 28 August, although the overall performance was in line with expectations after core revenues grew to £106 million from £98 million the year before.
In line with the company’s policy to distribute “truly surplus cash”, Games declared a 30p dividend for payment on 4 November that compared with 25p the year before. This took dividends so far in 2022-23 to £1.20 a share, up from 65p at this stage of 2021-22, after 90p a share landed in shareholder accounts on 12 September.
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Peel Hunt, which has a price target of 9,500p said the shareholder award revealed in today’s brief AGM trading update pointed to confidence in the recent cash flow performance.
It added: “Although Q1 profits are lower, we are not changing our FY forecasts as FX is providing a helpful tailwind and royalties should make a larger contribution in future periods. However, this will need a healthy sales performance to be delivered.”
The broker said it viewed the first quarter performance as a good result given the pressure on household budgets and comparison with the previous year’s Age of Sigmar product launch.
It added: “Hobbies are generally resilient in an economic downturn - as Games Workshop showed in the financial crisis - but are not immune.”
The FTSE 250-listed maker of Warhammer miniatures has been a popular stock among retail investors for many years, as well as a key holding for Baillie Gifford UK Growth Trust (LSE:BGUK) and Keith Ashworth-Lord's CFP SDL UK Buffettology fund.
Today’s fall in shares attracted a fresh wave of interest as Games featured among the top five most-traded stocks on our platform today, with most of the deals being “buy” orders.
Shares soared to 12,000p at the peak of the pandemic recovery in September 2021, buoyed by growth opportunities in North America and Asia and the potential for further licensing deals.
One of those partnerships was in the spotlight today when AIM-listed video games firm Frontier Developments (LSE:FDEV) revealed a strong outlook boosted by the real-time strategy game Warhammer: Age of Sigmar. The title is set to be released in Frontier’s 2024 financial year.
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It follows on from May’s successful launch of Warhammer 40,000: Chaos Gate - Daemonhunters, which has become the best-selling title for Frontier’s Foundry games label after a performance ahead of expectations.
Other successful releases during the past year have included Jurassic World Evolution 2 as Frontier today reported a 26% rise in revenues to £114 million for the year to 31 May.
Its operating profit fell sharply to £1.5 million, reflecting a previously announced write-down in relation to the under-performance of 2021’s Elite Dangerous: Odyssey.
The existing portfolio continues to perform well, and Frontier has been boosted by strong initial sales of F1 Manager 2022 amid a surge in popularity in the sport following the Netflix series Drive to Survive.
Jonny Watts, who has been chief executive since August after stepping into the role held by founder David Braben, said Frontier had made a “pleasing” start to the new financial year. He added: “We look forward with confidence based on our strong existing portfolio, and our exciting roadmap of new releases which includes unrevealed future developments."
Shares have fallen by around 30% this year amid a post-pandemic derating for valuations across the sector, but rose 90p to 1,282p after today’s update.
Broker Liberum has a price target of 2,110p, adding that a near 60% discount to Frontier’s average earnings multiple seen over the last five years is unwarranted.
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