Games Workshop’s (GAW) interim results are ahead of expectations. The highest rates of revenue growth were achieved in the channels with the highest operating margins, ie Trade (40% margin) and Online (64% margin). This has produced a strong improvement in free cash flow generation and ROCE has improved from 96% to 111%. We upgrade our forecasts for FY20 and FY21 by a further 3% following the 9% upgrade in November. Our DCF-based valuation increases by 11% to 5,748p.
Companies: Games Workshop Group
Games Workshop (GAW) has published a trading statement for the first five months of FY20, highlighting an acceleration in revenue growth to c 12% (versus our previous forecast for the year of c 4%), strong margin growth and encouraging signs with respect to its ability to leverage its intellectual property through royalty income. Our PBT estimates increase by c 9% for FY20 and FY21, and our DCF-based valuation increases by 10% to 5,176p.
Games Workshop (GAW), the global leader for tabletop miniature gaming, has bucked wider consumer trends and delivered a third consecutive year of record sales and earnings growth in FY19. The company is proactively exploring new ways, such as the development of digital content, in which to leverage its rich intellectual property and introduce the Warhammer hobby to new audiences globally. Our modest forecast assumptions, which have not materially changed, drive a DCF valuation of 4,703p.
Games Workshop has issued a closing update confirming FY19 revenue of c £254m and pre-tax profits of not less than £80m, in line with our recently upgraded forecasts. Consistent with company policy to distribute surplus cash, dividends totalling £1.55 per share have been paid during the year. The company continues to focus on international multi-channel expansion, customer engagement and product innovation, alongside its openness to exploring ways in which to leverage its rich intellectual property to generate royalty income.
As outlined in our recent initiation note, ‘On a mission’, Games Workshop’s (GAW) focus on international multi-channel expansion, customer engagement and product innovation, alongside its openness to exploring ways in which to leverage its rich intellectual property (IP) to generate royalty income, is continuing to deliver outstanding results. Strong trading since the half year, and new licensing agreements, lead us to upgrade our FY19 and FY20 earnings forecasts by c 14%.
Games Workshop (GAW) is the global leader for tabletop miniature gaming, a market it created and the fastest-growing segment of the $12bn global non-digital games market. GAW drives international multichannel sales through a robust pipeline of innovative new product launches and extensive use of online and social media marketing to engage with customers. The company is highly cash generative and delivers outstanding returns on capital, supporting a healthy c 4% yield. Both our forecasts and valuation of 3,490p have upside potential.
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
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Edison Investment Research is terminating coverage on ADMIE Holdings (ADMIE), AJ Lucas Group (AJL), Australis Capital (AUSA), Elbit Medical Technologies (EMTC), Focusrite (TUNE) and PPHE Hotel Group (PPH). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Previously published reports can still be accessed via our website.
Photo-Me was trading in line with expectations until COVID-19 hit in the final months of FY 2020. FY 2020 sales declined by -5.6% to £215.4m including £22.7m sales lost due to COVID-19 as consumer activity was impacted significantly. The Board believes that activity levels could take a long time to return to pre-COVID-19 levels; a thorough review of the business is underway and restructuring programmes are being implemented to better align operations to the current trading conditions. Net cash at April 2020 was £7.9m, comprising gross cash of £66.5m and drawn debt facilities of £58.5m. A €30m additional credit facility was received in May and June.
Companies: Photo-Me International
Today’s year end update confirms that FY20 has concluded in line with current market expectations, with no surprises just three weeks on from the last update. As we have heard recently from other listed housebuilders, demand appears to be coming back strongly (net daily reservations now at 80% of pre-COVID levels) and build activity is steadily improving (currently at 60% of pre-COVID levels and expected to reach 80% by September). The most striking feature of Gleeson’s update is the ambition to resume previous site opening plans (25 new sites targeted for FY21) and, thereby, to fulfil the strategic plan of completing 2,000 homes p.a. in FY22.
Companies: MJ Gleeson
Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
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GaaS and eSports a welcome boost; Buy
The ongoing pandemic only serves to underline business models that are robust, and those that aren’t. This morning’s trading update from UPGS puts them firmly in the winners’ category. As the company approaches the final weeks of FY2020, it not only reports “better than expected progress” against an uncertain business backdrop, but also that revenue and key profit measures for the year should be ahead of current market expectations. Furthermore, online as a portion of total business should record a fourth consecutive increase, providing additional flexibility and strength in the case of a second wave.
Companies: Up Global Sourcing
Walker Greenbank has a tangible strategic impetus under its new management team with a clear business model migration plan. While COVID-19 related market effects are affecting near-term trading – and the decision not to pay an FY20 final dividend – they are also presenting opportunities. Our estimates remain suspended for now ahead of the AGM on 29 July when an update on trading and the financial position can be expected.
Companies: Walker Greenbank
Portmeirion has provided an AGM trading update this morning effectively covering 20 weeks of H1. Online commentary is upbeat and export demand has sufficiently picked up for management to partially reopen the ceramics factory. Unsurprisingly the core retail demand in UK/USA remains subdued but we should stress Q2 (Apr-June) accounts for c25% of sales – 60% of sales and 80% of profits are made in H2. Investors should also take huge comfort around the balance sheet. Pro-active actions to minimise cash outflow means a significantly low cash burn of <£1m for the whole of Q2, whilst liquidity headroom of c£15m on our estimates is highly reassuring in the current climate. Management remain committed to reinstating the dividend once deemed prudent to do so. N+1 Singer currently has no formal forecasts in the market and will initiate coverage in due course. The stock has recovered from its 240p low in March and trades on a historic P/E of 7x and 4.5x EV/EBITDA with a >10% FCF yield and a NAV of 452p. Fundamentally the legacy brand portfolio is an attractive cash-cow with broad international appeal and significant brand equity. We feel this provides the foundation to support an exciting NPD/online/Wax Lyrical led strategy recently unveiled by the new CEO. The share price at the current depressed level presents an attractive entry point for investors looking for deep value, asset backed plays on a mid-term basis.
Companies: Portmeirion Group
Covid-19 could be the catalyst for build-to-rent (BTR) to “come of age” according to residential for rent developer and manager Watkin Jones. It was already ramping up BTR alongside its core of student accommodation, but we now believe demand for purpose-built private rental could be further boosted by people choosing to rent and by an institutional hunger to replenish dwindling sources of yield. The recent interims showed BTR overtaking student housing’s pipeline and we believe WJ’s low-risk, capital light model is tailormade to serve this burgeoning market.
Companies: Watkin Jones
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
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Churchill China has had another strong trading period and this is articulated in today’s H1 trading update. The business continued to sustain good export momentum, led by Europe, whilst UK Hospitality also moved forward despite Brexit uncertainty. We are lifting our 3 year EPS forecasts by 3.5%-4.0% this morning and see the risk on the upside as the year progresses. The shares currently trade on a 2019 P/E of 20x falling to 18x. On a 12m view we see fair value >1850p (22.5x FY20 P/E). Overall, today’s news further reinforces Churchill’s ongoing value creation and growth attributes. Non holders should take a close look at this high quality small-cap stock operating in an attractive global market with secular growth features.
Companies: Churchill China
COVID-19 update: div. suspended, expect downturn in orders
Companies: Headlam Group
Focusrite’s revenue has been driven by acquisitions against a period of tough comparatives for the core brands. Current trading looks more encouraging for the majority of the brands, which is leading to gross margin improvements and a better outlook for EBITDA margin. We upgrade EBITDA forecasts for FY20e and FY21e by c 7%, but a higher tax rate in FY21 limits EPS upgrades in that year. For FY20e, an EV/EBITDA of 15.4x and a P/E of 24.9x are above long-term averages.
Gleeson has issued an encouraging update on its recent site re-openings, construction activity and customer engagement. Sites are reopening as planned (62 out of 67 reopened) and customer demand is recovering well. Reservation levels are now at 70% of pre-COVID levels, up from 25% in recent months. The forward order book for sales in the next financial year stands at a very strong £135.2m on 940 plots (30th June 2019: £87.6m on 677 plots) and Gleeson is working to improve build rates within COVID-19 Secure protocols. The Group is in good financial shape after the recent placing and strategic growth plans are very much intact.