7:59 cut – GAW

Games Workshop – Trading Statement

“Oh no, an unscheduled trading statement from Games Workshop, I hope it isn’t too bad!”, thought nobody this morning.

[Added: Games Workshop own / develop the IP of the Warhammer hobby which they monetise mostly by selling fantasy miniatures. Last time I covered it I reported selling. Happily I saw the error of my ways and bought back in October for little more than I’d sold at.]

Games Workshop today guide sales and profits ahead of last year, with licensing income “significantly ahead”, giving H1 sales of not less than £140m and PBT of not less than £55m.

To give context, in H1 2019 their turnover was £125.2m, before royalty income of £5.5m, growing to £131.3m / £5.9m in H2. The consensus forecast for the FY 2020 is £271.4m.

Today’s update implies EPS in excess of 135p for H1. H2 has been consistent stronger than H1 of late, perhaps due to sequential growth and/or Christmas falling in their H2. Balancing this is the lumpiness of royalties which they emphasise benefited from timing issues. Assuming flat profits in H2 gives an EPS of 275p versus 208p consensus, a very significant beat. It also beats my recent projections:

Crunching the numbers further (admittedly with considerable assumptions around costs), it appears that when they say “royalties…are significantly ahead”, they are talking 50%+. While followers have been hoping for significantly increased royalty income over the next few years, I think it is the level of up-front payments that will surprise many. It could be argued variously that this demonstrates the strength of GAW’s IP / negotiating position, the licencees high expectations for total licencing fees, or (I suppose), that GAW have compromised future royalty payments for certainty now.

My central projection remains for £300m turnover, but I am now looking for EPS of 290p. This puts Games Workshop on a PE of 16 which I cannot see persisting for long.

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