Daily Stock Market Report (Tue 29th July 2025) - BAG, CARD, GAW, GRG, STEM, MGNS, FTC, FORT, JNEO

Good morning,

Quite a large table today - we are in results season!

All done for today, thanks!

Spreadsheet accompanying this report: link (last updated: 30th June).

Companies Reporting

Graham's Section

Games Workshop (LON:GAW)

Up 6% to £161.70 (£5.3bn) - Annual Report - Graham - GREEN

It’s not possible to criticise these results:

I note in particular the sharp year-on-year increase in licensing revenue and licensing operating profit. This is even higher quality revenue and profit than the core operations, as it’s effectively royalties on their intellectual property.

CEO comment (and also the Outlook statement):

'After a record year, we remain focused on delivering our operational plans and working tirelessly to overcome any significant obstacles that get in the way. We will continue to give ourselves the freedom to make some mistakes, constantly working on improvements in product quality and manufacturing innovation. Despite our recent successes we will never take our hobbyists' support for granted. I wish to thank all of them together with our staff, trade accounts and broader stakeholders for their ongoing support. Exciting times.'

The strategic report contains the usual mission statements that are in no way superfluous: I wish every company could explain what it does, and why, with such clarity.

Due to time constraints, I’ll merely try to pick out a few interesting parts of this report for you.

Tariffs: no major impact.

Our current estimate is that if we did nothing, new tariffs could impact profit before tax by c.£12 million in 2025/26. This new problem will be dealt with in our normal pragmatic way. We will not change our operational plans too much… it is business as usual for Games Workshop, once again a new normal has to be accepted. It's mostly out of our control…

Tariff costs are likely to reduce our reported gross margin next year. We have a detailed operational plan to make up the c.2% gross margin shortfall through efficiencies. This is not a simple task when we are already very efficient; it may take longer than one year.

Actually, I need to add this bit because it’s hilarious:

We have been pretty solid during the year managing our cash costs and investments. Net cash generation from our core operations is at planned levels and dividends have been paid at record levels from our truly surplus cash. All in line with our detailed operational plans and policies. The exception was the news about tariffs and the cute looking pipistrelle bat that is delaying our work on our new temporary car park. We are carefully looking after the bat and we hope the uncertainty around tariffs is resolved soon.

Cash: their target “cash buffer” has increased to £85m to reflect the new three-monthly cash cost of running the company. Actual cash as of June 2025 was £133m.

Licensing: because this is so lucrative, let’s get an update.

On 10 December 2024 we announced the conclusions of our negotiations with Amazon for the adaptation of Games Workshop's Warhammer 40,000 universe into films and television series, together with associated merchandising rights. The project continues in line with our contractual agreement with Amazon. This same contract prohibits us from sharing any specific details or commercial terms…. This is a long-term partnership with Amazon and there won't be any significant news in the short term - these things take several years to bring to market.

Video games:

During the period our licensing partners launched three new PC/console games and one mobile….

We are actively exploring further console and mobile opportunities, including Space Marine 3, without losing sight of the significant long-term revenue provided by PC games…

The general backdrop still remains challenging for this market in the short term. We therefore remain cautious when forecasting royalty income. Our dedicated team, with the full support of the Warhammer Studio resources, continues to promote the depth of our IP and its unique lore and settings to potential licensing partners. Four new games were announced in the period…

And an end-note on licensing:

As a reminder, the viability and ongoing success of any of our licensing deals is broadly out of our control; they are reliant on the successful development and delivery of projects by our licensing partners.

Estimates: estimates for GAW aren’t worth too much. There are moving parts that the company itself admits can’t be forecasted, and it has never seemed too concerned about making sure that City analysts get the numbers right. In fairness to it, I think this is consistent with a business that is focused on its long-term success rather than short-term targets.

For what it’s worth, here are value metrics based on forecast numbers currently:

Graham’s view

I’m happy to maintain the GREEN on this as it’s a unique company with IP that can’t easily be replicated (I don’t think anyone could replicate it credibly). And it’s still sufficiently niche that I don’t think we can argue that its current success is just a fad: it owns this niche, and I don’t think that’s going to change.

I calculate ROE from these results at 74%, an increase from the 65% on the StockReport. Exciting times indeed!

Roland's Section

Greggs (LON:GRG)

Down 4% to 1,564p (£1.6bn) - Interim Results - Roland - AMBER

Today’s results from Greggs have met with a cautious response from the market. But they do appear to be in line with recently-reduced expectations (Megan covered the company’s recent profit warning here).

Today’s accounts over the 26 weeks to 28 June 2025 and show the impact of cost inflation and lower footfall, with sales up but profits down:

• Revenue up 7% to £1,027.7m

• Like-for-like sales in company-managed shops +2.6%

• Like-for-like sales in franchised stores +4.8%

• Pre-tax profit down by 14% to £63.5m

• Diluted earnings 16% to 45.3p per share

• Interim dividend unchanged at 19p per share

Positive LFL sales are encouraging but sales growth was not enough to overcome the pressure from higher costs – Greggs’ distribution and selling costs rose by 10% to £511m during the half year, in part presumably due to store openings.

I’m not sure what to make of the weaker LFL performance of company-managed stores, which account for around 80% of the store estate. Are franchisees selling more successfully or perhaps situated in more exciting locations?

The company says that it’s continuing to develop its menus to support growth in the post-4pm ‘daypart’. Sales made in the later part of the day now comprise 9.3% of sales (H1 24: 8.4%) and are growing faster than average. Recent menu “standout” menu introductions include the Red Pepper, Feta and Spinach Bake and Korean BBQ Chicken Flatbread.

Store openings vs profitability

One element of Greggs’ secret sauce has always been its skill at locating its stores in exactly the right places to capture passing footfall. As high street usage and out-of-town leisure locations have developed, the ‘right’ place for stores has evolved and this is reflected in the group’s changing store estate.

The company opened 87 new shops during the first half of the year, but also closed 56 (including 27 relocations). Net openings were 31, leaving the company with 2,649 shops at the end of June.

CEO Roisin Currie remains confident in the “clear opportunity” for over 3,000 UK shops in the longer term, but this is a topic that is starting to divide investors. The risk is that newer stores may start to cannibalise existing shops, resulting in cumulatively lower profitability.

The company acknowledges this in today’s results but says that in cases where a new store is opened within a mile of an existing shop, transfer of sales (cannibalisation) is just 5%, on average:

Analysis of our Greggs App customers shows that those who visit a new shop increase the overall frequency with which they visit Greggs, maintaining their visits to existing shops. In 2024 60% of our new shop openings (excluding relocations) were in areas with no other Greggs shop within a mile, with 2025 openings having a similar profile. For openings in areas with existing access to Greggs within a mile of the new shop, the transfer of sales from existing shops averaged just 5%.

To some extent, cannibalisation isn’t a problem if the company can achieve an increase in overall volumes, or sales per customer. Greggs seems confident that it’s achieving this.

From a financial point of view, what interests me is whether the extra growth is achieving satisfactory returns on capital employed – or whether further growth could end up diluting the group’s profitability.

Profitability has remained stable in recent years at a group level and Greggs’ ROCE of c.20% is certainly a respectable figure:

However, the size of the store estate means that the new store openings will only have a very slight impact on overall group results – at least initially. This means that we might not be able to recognise overexpansion until it’s too late to easily reverse it.

To try and get a feel for the extra profitability generated by these capital additions, I’ve estimated the increase in capital employed since 2021 and compared this with the increase in operating profit over the same period.

Greggs’ capex has been relatively high in recent years. Today’s H1 results reiterate FY25 capex guidance of £300m, up from £249m last year. Expenditure is expected to peak this year as investment in new national distribution centres is completed alongside store openings.

Capital employed in the business has risen from around £680m to £1,045m since 2021. To date, operating profit has risen by £51m over the same period.

My sums suggest that the return on this incremental capital employed has been around 14%. That is a reasonable figure, but it is below the c.20% group average.

In fairness, I think it’s probably reasonable to argue that some of this additional capital (e.g. store openings and new manufacturing and logistics infrastructure) has not yet achieved full profitability.

On balance, I think Greggs’ growth and capex plans are worth keeping a critical eye on. There’s a risk the company will grow at the expense of profitability. But this my quick review today suggests to me that Greggs has (probably) not yet reached the stage where it’s destroying shareholder value by overexpanding.

If capex eases after this year and profits continue to rise, then this period of higher investment could start to deliver attractive returns, potentially justifying a higher rating for the shares.

FY Outlook

Today’s results include a clear statement from CEO Roisin Currie reiterating recent guidance:

The Board's expectations for the full year are consistent with the guidance provided in our last trading update on 2 July.

Unfortunately, this guidance does mean that operating profit for the current year is expected to be “modestly below” the £209m achieved last year.

I expect consensus forecasts to be largely unchanged after today, suggesting that Greggs is currently trading on a forward P/E of 13, with a 4% dividend yield:

Roland’s view

I think Greggs still needs to show that the increasing scale of its store estate and complexity of its menu will deliver attractive returns. But I have to admit I am feeling more positive than I expected to at the end of this review.

One caveat to this is that today’s results and in-line outlook statement have come less than a month after the company issued a profit warning:

Earnings forecasts have trended lower since September last year and we know that, statistically, companies often underperform following profit warnings.

Arguably it’s too soon to really know if the outlook for the remainder of the year will be in line with these lower expectations. Greggs is still very much exposed to cost inflation and any weakness in consumer spending.

On the other hand, the stock has significantly de-rated over the last year. The share price is down by around 50% and the P/E has fallen from 21 to just 13:

I am tempted to upgrade our view to AMBER/GREEN today. But on balance, I feel that it’s probably prudent to maintain our neutral view a little longer until there’s more clarity on whether profit expectations really have bottomed out. AMBER

Filtronic (LON:FTC)

Up 1% to 154p (£338m) - Final Results - Roland - AMBER

Filtronic plc (AIM: FTC), the designer and manufacturer of products for the aerospace, defence, space and telecommunications infrastructure markets, announces its full year results for the 12 months ended 31 May 2025.

Today’s blowout results are outstanding, but are no better than expected to my eyes, with revenue and diluted earnings almost exactly matching Stockopedia's consensus figures of £56m and 6p respectively.

• Revenue up 121% to £56.3m

• Pre-tax profit up 294% to £13.4m

• Diluted earnings up 329% to 6.05p per share

• Net cash: £10.8m (FY24: £4.2m)

We know that Filtronic has gone gangbusters with SpaceX this year. The satellite internet company contributed 83% of last year’s revenue as it retrofitted Filtronic’s E-Band power amplifiers into its base stations. That’s an astonishing and risky level of customer concentration, in my view.

Investors have enthusiastically rewarded this lucrative streak of growth – Filtronic’s share price has risen by 750% in two years:

However, we know less about what may be coming next. Demand from SpaceX is expected to ease, with major new sales phases to be based on new technologies not yet in production.

Credibly, given what must have been a powerful focus on delivering for SpaceX, Filtronic has made some progress at diversifying its revenue streams over the last year.

Recent wins have included European defence primes BAE Systems and Leonardo and rival space operators such as Airbus/OneWeb and the European Space Agency.

As a result, the revenue outlook for the next year is broadly flat, with a return to growth expected in FY27.

However, achieving these wins and making the necessary investment in R&D and manufacturing has left Filtronic with a significantly increased headcount and cost base:

Filtronic’s salary costs rose by 78% to £6.4m last year, with associated increases in other overheads.

As a result, the 24% operating margin achieved last year is expected to reset to a much lower level from FY26 onwards, resulting in a sharp fall in profits.

Outlook & Estimates

Unchanged broker forecasts today suggest earnings will fall by nearly 50% this year, with only a limited recovery in FY27.

With thanks to broker Cavendish, we have unchanged forecasts today for FY26 and newly-introduced forecasts for FY27, suggesting incremental earnings growth from FY26 (i.e. still a long way below FY25):

These forecasts suggest Filtronic’s operating margin will drop to c.15% in FY26, which I'd consider more typical for a high-tech manufacturer of this kind.

This leaves the stock trading on a FY26E P/E of 47, falling to a P/E of 39 in FY27.

Roland’s view

I am full of admiration for what Filtronic has achieved to date and I recognise the company’s track record of outperforming expectations over the last 18 months:

However, I think it’s fair to say that this has largely been achieved from single product sales to a single customer, resulting in an exceptional and potentially unrepeatable level of profitability.

This level of concentration carries a lot of risk and I think Filtronic has done quite well to start mitigating this while still delivering to SpaceX’s satisfaction.

However, when looking ahead, I think it makes sense to value the business based on expectations for a more diversified revenue base. This seems likely to entail lower margins, as the company spends more on R&D and produces a more mixed range of products (in lower volumes) for a variety of customers.

I have maintained an AMBER/GREEN view on Filtronic for some time in hope of an upgrade to the outlook for FY26. But this has not been forthcoming and I can’t help noting that share price momentum has weakened recently, with a higher proportion of sellers than usual in recent weeks:

On balance, I think there’s a risk Filtronic’s valuation will reset to reflect a more normalised pattern of growth and profitability.

I’d probably be positive on the stock below 100p, as I do see this as a potential long-term growth story. However, at current levels, I don’t feel I have any choice but to adopt a neutral view after today’s results. AMBER