Picture supply: Video games Workshop plc
Video games Workshop Group‘s (LSE:GAW) impressive share price performance has probably surprised many people. After all, who would have thought that a company selling miniature plastic figures could become one of the UK’s most beneficial listed firms?
Since December 2024, its shares have risen 38% in worth. That was the month it joined the FTSE 100. It’s now the UK’s 67th most beneficial listed firm.
Nevertheless, might there be extra to come back? Let’s have a look.
A intelligent mannequin
The very first thing to notice is that many suppose the group’s greater than only a enterprise. To some, it’s a cult. This helps create an enormous quantity of loyalty and repeat enterprise from its prospects (or ought to I say members?).
Its largest model is the Warhammer franchise. In keeping with the group’s advertising and marketing blurb, this includes “a variety of tabletop games, miniatures, universes, and stories”.
In a latest article within the Monetary Instances, Jason Andrew, the co-founder of Arbor Group, put the group’s success right down to its near-monopoly of the provision chain. He mentioned: “They design the IP [intellectual property], manufacture the product, control the retail experience and own the distribution.”
This helps it earn a powerful margin. Through the 52 weeks to 1 June (FY25), it reported a core gross revenue margin of 69.5% and 100% on its licensing preparations.
New enterprise
In a partnership that it hopes might be extremely profitable, the group’s working with Amazon Studios to create quite a few movies and TV exhibits. This might take the model to a brand new viewers. And that is vital as a result of there’s solely a lot it could actually promote to current prospects, which stays a priority of mine.
There’s some proof that its earnings development is slowing. Through the six months ended 30 November, the group estimates that its revenue earlier than tax might be no less than 6.5% greater than for a similar interval a yr earlier. However this time final yr, the reported half-year enhance was 33%.
One other potential challenge is that the group’s not that nice for earnings. Primarily based on quantities paid in respect of FY25, the inventory’s at present yielding 2.6%, a bit of beneath the typical for the FTSE 100.
Nevertheless with a payout ratio of 87%, the scope to enhance its yield additional is restricted. I feel this additionally calls into query the sustainability of its dividend.
Closing ideas
Undoubtedly, Video games Workshop is a British success story. Since December 2015, its share worth has risen practically 3,290%. But when I’m trustworthy, with a a number of of 36 instances ahead earnings, I feel the inventory’s costly. And analysts seem to agree with me. The consensus view is that the group’s shares are 9% over-valued in comparison with as we speak’s (5 December) worth of £198.30.
Having mentioned that, it’s vital to acknowledge that there are solely three brokers protecting the inventory. Their numerous worth targets of £170, £180 and £210 counsel there isn’t actually a consensus.
Personally, it feels as if I’ve left it too late to take a stake. After all, I could possibly be proved flawed. If the transfer into TV and movie is a hit then I’m certain the group’s share worth will climb greater. However till I do know extra, I’ll sit on the sidelines and search for the ‘next’ Video games Workshop to put money into.
