Warhammer firm Games Workshop breaks more records

Despite a share price way off last September’s peak, there’s plenty to like about the £2.4billion business and potential for the company’s valuation to recover.

Games Workshop (LSE:GAW) has revealed another “astonishing” year, but for an army of stock market followers it’s been one of contrasting fortunes during a roller-coaster ride for shares.

The FTSE 250-listed maker of Warhammer miniatures topped 12,000p at the peak of its pandemic recovery in September, only to surrender a third of its value as consumer-led sentiment weakened.

The frustration for investors is that under the leadership of Kevin Rountree there’s been no let-up in the company’s strong record of robust trading and distribution of “truly surplus cash”. Its latest dividend declaration will see 90p a share paid to shareholders on 12 September, on top of the 285p a share handed out in the year to the end of May.

In today’s results, full-year profits increased by 4% to another record of £156.5 million despite the pressures of Covid, supply chain disruption and higher freight costs. Brexit also added £3.4 million of additional costs and created staff recruitment gaps, especially those with language skills in its UK-based European trade team.

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Rountree hailed “another astonishing” year today, having beaten the revenues record set in its Warhammer 40,000 launch year in 2021. He added that the company remains on the front foot as it looks to develop its core operation and licensing business.

He said: “Our goal remains the same to deliver our strategy and share our love for Warhammer, globally.”

Shares have rebounded 20% in the past month, although that recent improvement stalled in this morning’s wider retail sell-off despite Rountree’s comments and latest in-line results.

As well as being a popular stock among retail investors, the company is a key holding for Baillie Gifford’s UK Growth Trust (LSE:BGUK) and Keith Ashworth-Lord's CFP SDL UK Buffettology fund.

Peel Hunt removed its long-held 12,500p price target today to reflect lower peer valuations, but its new estimate of 9,500p still represents significant upside on today’s 7,290p.

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The City broker has not changed its forecasts for the current year, with currency helping to offset higher costs and the economic environment. It also believes the business will benefit from 5-10% price increases put through in March, which should offset inflationary pressures.

Peel Hunt added: “Hobbies tend to be pretty resilient during a recession and Games Workshop has plenty of new product to engage its hobby base.” The broker also sees “considerable opportunity” to grow in North America and longer term in Asia, as well as monetise the intellectual property.

Products are sold through 6,200 independent retailers in 72 countries, accounting for more than half of the business.

Its remarkable stock market success, including a 2020 valuation in excess of British Gas owner Centrica (LSE:CNA), owes much to this rapid international expansion as well as income generated through computer games and other licensing deals.

Its main warehouse and distribution operations are in Nottingham, but Games Workshop has two major logistics hubs in Memphis, Tennessee, and Sydney, Australia, serving the now three-quarters of company sales generated outside the UK.