Interactive Investor

How long before Games Workshop makes it to the FTSE 100?

10th September 2020 15:45

Graeme Evans from interactive investor

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From strength to strength and up almost 20% today, blue-chip status is increasingly possible.

Dividend-paying and still smashing expectations, Games Workshop (LSE:GAW) continues to put other stocks in the shade after its latest trading update sent shares up almost 20% today to a record high.

For a company selling dungeons and dragons-style fantasy game miniatures, its seemingly never-ending ascent into a business now worth £3 billion has been truly remarkable.

It has done so in recent months in the face of particularly challenging trading conditions, with its retail stores still recovering from lockdown-enforced closures earlier in the year.

Strong growth in online and trade channels, however, has more than made up for the pressure on the 531-strong retail estate in 23 countries. Games today reported better-than-expected sales of about £90 million in the three months to August 30, compared with £78 million a year earlier and leading to profits some 60% higher than 2019 at around £45 million.

Buoyed by this performance, Games today declared a dividend of 50p a share to be paid on 23 October to shareholders on its register at the end of next week.

This is in line with the company's policy to distribute “truly surplus” cash, under which it seeks to always have a cash buffer of three months’ worth of working capital requirement.

Today's award helped to drive shares in the Nottingham-based company to a fresh record of 10,420p, giving the company a market value well in excess of that seen for Centrica (LSE:CNA) and easyJet (LSE:EZJ).

The shares are now three times higher than their low point in March, with last night's closing price showing the stock trading on about 40 times adjusted profit. They had been less than 1,000p prior to the transformation of the company's trading performance in 2017.

Our companies analyst Richard Beddard said last month: “The company’s qualities are there for all to see, and that is reflected in the share price. The valuation is off-putting, but it is a unique business that may well still reward investors over the long-term.”

Demand for the company's Warhammer figurines now comes from across the world, with 75% of its £269 million annual revenues outside the UK. North America and Asia are seen as potentially lucrative markets for Games to target in order to generate further growth.

CEO Kevin Rountree said recently: “We seek out our customers all over the world. We believe that our customers carry our Warhammer hobby gene and to help find them we have two key tools: our retail chain and our online content.”

​​​​​​​The company controls every aspect of the Warhammer hobby from design, manufacture, marketing, distribution and retail. Through articles, videos, podcasts and cartoons, its website teases new character and story launches, and helps with modelling and gaming.

Metrics from Warhammer Community are used as key performance indicators for customer engagement. It achieved 145 million page views from 8 million users so far in 2020.

Profits rose £8.1 million to £89.4 million in July's annual results, a performance described as “amazing” by Rountree given the disruption of Covid-19 towards the end of the period. The store estate contributed 29% of sales in the last financial year.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Related Categories

    UK shares
    Consumer goods and services
    Industrials
    Utilities
    Gaming

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