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.
GAW is a niche market, vertically integrated manufacturer with a longstanding reputation for producing high-quality miniatures for its iconic Warhammer worlds. GAW operates in the fastest growing segment of the non-digital games market and is differentiated by its scale, expertise and control over every aspect of its brand and products, from concept and design to manufacture and distribution. As a result, it is able to leverage its rich intellectual property (IP) to generate royalty income.
GAW is executing on its strategy to seek out enthusiasts worldwide, such that 76% of revenue is now generated outside of the UK and the company is actively pursuing further significant opportunities for growth in North America, Germany and Asia. International expansion is supported by integrated multichannel distribution, a robust pipeline of new product launches, and extensive use of online and social media marketing to broaden the brand’s appeal and engage with customers.
GAW has beaten consensus FY EPS estimates for six of the past eight years and approximately doubled profits in each of the past two years. In light of macro uncertainties, tough sales comparatives and while the company executes on infrastructure projects that will aid gross margin recovery (H119: 520bp decline y-oy to 66.9%) and support future expansion, we initiate with conservative assumptions driving a 5.4% reduction in FY19e EPS and 4.5% growth in FY20e.
Our blended DCF and peer comparison values the shares at 3,490p. We forecast an average ROCE of 91%, cash conversion of 84% and a £24.3m increase in net cash to £52.9m over the two years to FY20e, underpinning a healthy yield of c 4% and scope for further distributions to shareholders, in line with company policy.