Shares round-up: Games Workshop, Paragon and discoverIE

There’s more disappointment for fans of Games Workshop, but fellow FTSE 250 stocks Paragon Banking Group and discoverIE have raced ahead.

A robust update by Games Workshop (LSE:GAW) failed to improve the mood for its army of followers today as shares continued their retreat to trade at the lowest level since May 2020.

The highly regarded fantasy miniatures retailer and distributor had been as high as 12,200p in September, but is now back at 6,185p despite today’s in-line figures for the year to 29 May.

Games Workshop said revenues will be not less than £385 million compared with £353 million the year before, leading to pre-tax profits of at least £155 million. Dividends declared in the year were unchanged at £77 million, equivalent to 235p a share.

The profit figure represents a £4 million improvement, even though margins in the previous year were boosted by the release of pent-up demand following the pandemic and much lower costs.

Even though house broker Peel Hunt made no change to its forecasts today after what it described as a strong underlying performance, shares still surrendered 205p as sentiment towards consumer-focused stocks remains weak.

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Peel Hunt, which has a price target of 12,500p, said the company is in great shape, having invested in manufacturing capacity and distribution and a strong new product line-up.

It said today: “Clearly consumer spending is under pressure, but hobbies tend to hold up well and are driven more by the desirability of new products.”

Currency now also provides a significant tailwind as sales in the US are over 40% of the group and the company has a material UK cost base. Sterling is currently about 10% lower versus the dollar than the average for last year.

Peel Hunt added that a 5% increase in prices at the start of March meant a nine-month benefit in the current year, while freight costs are starting to reduce from elevated levels.

The broker said: “Games Workshop remains in a strong position, with considerable opportunity to grow in North America and largely untapped potential in Asia.”

Elsewhere in the FTSE 250 index, shares in electronic components business discoverIE (LSE:DSCV) fought back today after being hit by worries over inflation and supply chain pressures.

Analysts at finnCap said today’s full-year results showed the company performing well against these challenges and that long-term growth prospects are intact.

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The business, which designs and makes electronic components for industrial applications, employs 4,900 people across 20 countries. It reported a performance well ahead of the pre-Covid period as record growth in orders and sales continues to reflect a focus on structurally growing target markets.

Adjusted earnings were 34% higher at a bigger-than-expected £41.4 million and the full-year dividend has been increased 6% to 7.45p a share for payment on 2 August. The dividend has more than doubled since 2010.

FinnCap’s target price is unchanged at 1,220p, which represents a 79% upside and continues to include the potential from acquisitions as well as further organic progress.

Paragon Banking Group (LSE:PAG) also impressed today after half-year results from the buy-to-let and business lender showed underlying profits increased 27.3% to £105.5 million.

Chief executive Nigel Terrington said: “While the UK economy faces headwinds, we have a high-quality loan book and we are confident in our momentum.”

Shares rose 29.8p to 499.8p as Terrington raised guidance for the full year, driven by a net interest margin now expected to expand by over 20 basis points rather than five.

Peel Hunt notes that Paragon shares have little changed over the last six months and have modestly underperformed the company’s closest peer, OneSavings Bank.

Based on its upgraded expectations, the broker says that Paragon is trading on a September 2022 earnings multiple of just over seven times while yielding 5.4%. Its 690p target price is supported by “strong momentum, improving returns and efficient capital management”.