Games Workshop Share Discussion Threads

[buffettjnr] 14/9/2020 21:46

Exactly. Why why why

[4053777] 14/9/2020 21:37

Expect a spike here next few days !

[cockerhoop] 14/9/2020 15:07

I also found it interesting the company appears comfortable to report quarterly numbers which i'm not aware they've done previously - certain they haven't in the 4 years I've been holding. Suggests a confidence going forward imo.

[cockerhoop] 14/9/2020 14:51

My interpretation of the increase in profit margin in Q1 is that the company has attempted to address the significant independent online internet growth which has thrived by being able to sell at a 20% discount compared to GW's own online store. This was fine in the days of small stores with also some additional mail order sales but today some of the larger UK outfits sell up to 1000 copies of a popular new release at discounted rates via very efficient online shops.

It appears that since the SoB release independent retailers have had their allocations reduced compared to historic provision with the result that more sales have been funnelled through the GW store at RRP, boosting overall margins.

This was very apparent during the Indomitus release and Edison have been guided that online sales grew at 30% in Q1 which is a step change over recent years (online growth has been pretty subdued)

If i'm correct then the margins may become a bit more elastic around the bumper release schedule ie major new releases in June/July (Q1) and Black Friday (Q2) suggesting a possible H1 margin weighting.

[1rcl] 14/9/2020 14:02

1smw - thanks for sharing more detail on your thinking. Much appreciated. It also brought a smile to my face. :-)

[1smw] 14/9/2020 13:44

It would be dangerous to extrapolate a PBIT margin at 50% for the whole year as there is not enough information to understand why it was a step change higher in 3 months' trading statement. I am not saying it won't be 50% for whole year, it is just too early to call. PBIT margin to June 20 had been 27.1%, H1 was 33.3% and H2 was 20.1%, latter affected by no sales for 6 weeks, but all SG+A costs still being borne. I had assumed a return to growing PBIT margins in the current year and was clearly too conservative in going for 35%. I had expected more cost in the business to deal with working in the C19 environment. However, operational gearing has swamped any extra costs. The brokers coverage was woeful in three major respects. They didn't forecast for 52 weeks' trade this year versus 46 weeks last year. They didn't allow for any growth in sales on top of extra weeks' trading. They didn't consider the effect on margins. The PBIT margin in June 18 was 29.2%, June 19 27.3% (new capacity costs) , H1 for last year 33.3% and H2 20.1% combined 27.1%. Why would any forecaster who knows how business works expect PBIT margin to stay at 27.1%. The best guide was H1 at 33.3%. They didn't bother using that as a base. Edison ( i use them as everyone can access) now have sales at £302.5m, which allowing for £90m we know about, means that for next 9 months sales they say sales will be £212.5m. The run rate in the year to June 2020 with the missing 6 weeks would support sales in 9 months of £228.8m so again they are failing to analyse (analysts are supposed to do this, the clue is in the job title). I do not expect for one millisecond that there will be no growth in next 9 months so again they fail. Finally they have a PBIT margin of ~35%. So got to where I got to with the annual results announcement, but this now looks plain stupid when Q1 is at 50%. It means they think that 1. sales will be lower in 9 months than last year pro rata and they think PBIT margin will slip to 28.4%. I will update when I feel more confident about annual PBIT margin, all I will say is I expect my 35% figure in my forecast from early August to be beaten significantly.

[robinnicolson] 14/9/2020 13:36

FWIW the latest consensus forecast for GAW from three brokers, all of whom have a buy rating on the stock:

(All figures £million unless stated)

FY 2021:
Turnover: 301.5
EBITDA: 134.0
Pre-tax profit: 112.0
EPS (pence): 272.3
Dividend (pence): 193.3
Capex: 23.3
Free cash flow: 68.5
Net borrowing: -68.8

FY 2022:
Turnover: 322.6
EBITDA: 142.1
Pre-tax profit: 117.4
EPS (pence): 286.0
Dividend (pence): 206.9
Capex: 20.2
Free cash flow: 84.0
Net borrowing: -86.8

FY 2023:
Turnover: 341.2
EBITDA: 148.2
Pre-tax profit: 127.9
EPS (pence): 308.6
Dividend (pence): 220.0
Capex: 25.5
Free cash flow: 90.8
Net borrowing: -102.4

[epo001] 14/9/2020 13:04

Thanks for the insights.

[1rcl] 14/9/2020 13:01

1smw - great response, thanks. Do you have a reforecast EPS figure for this FY, after the lower SG+A?

[1smw] 14/9/2020 10:44

The staff received £1k bonus in 18/19 and 19/20. This is the contractual right for hitting certain KPIs. In 18/19 they also received a discretionary bonus of £1.5k, the key word is discretionary. We all voted on it. In 19/20 the discretionary bonus was not paid and this was not hidden, it is clear in the R&A. Dividends were also suspended. So the pain was shared or rather prudence was served out amongst all stakeholders. The staff did, however, have 6 weeks at home on full pay (not 80%) and the company is repaying any sums received from the UK government. The journalist picked the wrong company to have a go at; there were other inaccuracies in his reporting. With a little work he would have realised that the company beats broker forecasts time after time, even when they re-forecast as the year goes on. When results were published for 19/20 I carried on buying as the brokers were laughably too low. In case you are interested, my forecasts at the time were Sales for this year £366m and PBIT £128.1m, Royalty £18.5m PBT £146.6m, EPS 357.1p. A PE of 28.4x at £101.50 close for 63% earnings growth. Not quite the fantastical PE of 40x (it was actually 37x at closing price and earnings he was using of +25%) the journalist wrote. My sales number is still good, but bluntly I significantly underestimated the operating gearing in this business and SG+A will be lower than I modelled. I am an ex fund manager and started buying in low 400s and have bought all the way up.

[1rcl] 14/9/2020 10:10

Regarding the FT article comment on bonus payments, that covered the previous FY, which included the factory shutdown period, where profit growth was impacted and dividends were temporarily suspended (I believe a partial staff bonus of £1k was still paid - but I haven't double checked this). The recent trading update, with the big profit increase, covers this current FY - and if all continues to go well, I would expect the full staff bonus to occur this FY.

[epo001] 14/9/2020 09:54

From the FT article, "Games Workshop staff also have reason to be upset, having not received discretionary bonus payments of around £1,500 even after delivering record profits for the 2020 financial year."

This is not good. As shareholders we should insist that GAW treat their people well, they are after all the ones who drive future revenue and growth. If there is money for a divi then bonuses should have been paid first.

I will make my feelings known to the company.

[energeticbacker] 14/9/2020 09:46

Games Workshop leads our Ultimate Stocks in difficult times.

Investor’s Champion has run through the performance of ten of the companies in their Ultimate Stocks portfolio during a truly challenging time. Details on the Investor's Champion website.

[epo001] 14/9/2020 09:07

Who are ISS, what's in it for them?

[robinnicolson] 14/9/2020 07:39

"The Making of a Multibagger. An analysis of the best performing stocks over the past 5 years"

An Alta Fox Capital intern class project written in August 2020. Games Workshop ranks No.8 in the list.



Setting aside the inclusion of Games Workshop, this is a useful resource for further research into other companies which may be still be in the early innings of their growth. The document runs to 645 pages...

[nod] 14/9/2020 05:00

The FT is advising caution. As many were 12 months ago and 24 months ago - they will be right one day.

Investors should beware Games Workshop’s fantastical share price

[nod] 14/9/2020 01:01

Nick Donaldson has been with GAW for 18 years, but has only been Chairman for three years. During those three years our business and share price has performed exceptionally well. Why would you want to mess about with the ingredients?

[luderitz] 13/9/2020 21:07

Positive w1?

[woland1] 13/9/2020 18:08

Financial Times have something to say https://amp.ft.com/content/08b06981-6cdd-4595-b8f1-86ed723a4fbc

[1rcl] 13/9/2020 10:41

This is what GAW said in their last annual report about Nick Donaldson's re-election (they recognise the thinking behind the rule, but basically don't won't to automatically lose rare, good people due to a 'checklist' requirement - they want to keep control of the timescale):

"Regarding the specific Code circumstance of service of over nine years, the board’s position is as follows:

The ‘nine year rule’ is a helpful guide to the risk of directors becoming ‘stale’. The board considers this risk periodically, but has not yet found it to be an issue at Games Workshop. If it did, it would react accordingly. At present the board feels that the requirement for members of the board to have a real understanding of, and empathy with, the Warhammer hobby to be a point in favour of retaining the experience which the board currently has.

Based upon its assessment, which focuses on each director’s attitude towards making his best contribution to the progress of the Company, the board considers that Nick Donaldson is independent."

[shanklin] 13/9/2020 10:11

Some people will always find something to moan about.

[robinnicolson] 12/9/2020 16:50

Games Workshop are mentioned in this article "The Digital Future of Tabletop Games" posted by the Silicon Valley VC firm Andreessen Horowitz:

[1rcl] 12/9/2020 15:48

Leon is a well regarded investor. Google him to find out more, see interviews, etc.

[recut more] 12/9/2020 15:41

1Rct:
Who is Leon Boros?

[1rcl] 12/9/2020 15:39

Regarding covid, GAW arguably still wins. A major outlet for discretionary spending is bars/restaurants/clubs/hotels/etc. That alternative outlet for spending appears to not exist for the foreseeable future. That money not spent is then available for other leisure pursuits - such as hobbies. I think GAW has this year nailed financially. 350p is my central estimate for full year EPS, but I wouldn't be particularly surprised to see it higher (a lot does depend on licensing, which can be lumpy).