Interactive Investor

What’s troubling Warhammer firm Games Workshop?

16th September 2021 13:48

Graeme Evans from interactive investor

These normally popular shares were down over 7% at one stage Thursday. Our companies analyst explains why.

The stock market army of Games Workshop Group (LSE:GAW) fans were left frustrated today when more strong trading and another chunky dividend failed to trigger a fresh advance for the share price.

The continued popularity of Warhammer fantasy miniatures sent the value of the high-flying FTSE 250 stock above £4 billion earlier this year, but this summer has been much tougher going as shares have remained stuck between 11,000p and 12,000p.

Any hopes that a post-AGM trading update might lead to fresh momentum were dashed when a reference to rising freight costs and currency exchange rates fuelled margin jitters and prompted some City analysts to scale back their forecasts.

Shares dipped by as much as 6% before settling 4% lower at 11,140p, even though the company said sales had continued to grow in the three months to the end of August. Peel Hunt described this performance as excellent and said it should come as no surprise that margins will be lower than last year, partly due to investment in the business.

The broker continues to have a price target of 12,500p based on the global expansion of distribution capabilities: “We continue to see multiple opportunities for the company and investment in capacity and supply chain provides potential for stronger performance.”

Games Workshop declared a first quarter dividend of 25p a share from “truly surplus cash”, a payment shareholders will receive on 5 November on top of the 40p a share that landed in their accounts on Monday after an announcement at the start of the financial year in July.

The 25p a share compares with the 50p a share awarded at the same point last year, putting further pressure on shares as analysts speculated about lower rates of cash generation.

The shares have a strong following and are a top holding for UK investors through funds such as the Baillie Gifford UK Growth Trust and Keith Ashworth-Lord's CFP SDL UK Buffettology fund.

They were changing hands at 500p five years ago and 4,100p at the height of the pandemic sell-off in March 2020 but have surged on the back of continued international expansion.

As well as warehouse and distribution operations at its Nottingham HQ, Games Workshop has two major logistics hubs in Memphis, Tennessee and Sydney, Australia serving the 77% of company sales now generated outside the UK. Products sold through 5,400 independent retailers in 73 countries account for 55% of business.

The slide for Games Workshop bucked an otherwise positive session for mid-cap investors, with the FTSE 250 index up 131.29 points to 23,564.10. There were big rises of 5% for Wizz Air and easyJet after an upbeat Michael O'Leary told Ryanair shareholders about his upgraded forecasts for growth over the next five years as the air travel sector finally recovers.

easyJet, Hilton Food and  Galliford Try

Shares in easyJet (LSE:EZJ) were 29.4p higher at 595.4p but that's still short of the theoretical ex-rights price of 638p under the £1.2 billion fundraising announced last week. Shareholders have until to 27 September to decide whether they want to take up their rights to the new shares.

Other risers included supermarket meat supplier Hilton Food Group (LSE:HFG), which reported a 22.8% rise in earnings per share to 32.4p and said its financial position remains robust as it explores opportunities to grow the business in the UK and overseas. Shares were 46p higher at 1,140p, reversing some of the fall from 1,194p seen since the end of last month.

All-Share stock Galliford Try Holdings (LSE:GFRD) also rose 6.4p to 178p as the construction firm's full-year results revealed further progress towards its margin improvement targets. Profits were above previous guidance at £11.4 million and there was also a final dividend of 3.5p a share.

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