Games Workshop
Number of shares in issue: 32.1m
Market cap: £229m (@713p)
Year end: May
Market size: 500
Two interesting facts about Games Workshop (GW):
- it does’t spend money on glossy accounts: no photos, no colour; and
- dividends are not paid out to a pre-set timetable but as soon as there is excess cash - over the last five years the only months it hasn’t paid a dividend have been May, August and October.
Background
GW describes itself as a maker of the best fantasy miniatures in the world retailing to customers who collect, paint and play with the miniatures and games. It operates in a niche in which it is the leader by some distance in an otherwise fragmented market.
It is based in Nottingham and has been around since 1980, floating on the LSE in 1994, following an MBO led by the current Chairman - Tom Kirby. The CEO and FD, both in their mid 40s were appointed to their roles in January 2015, but both have been with the group since the 1990s. Neither have significant equity stakes - but their parsimonious approach to presenting their accounts, rapid distribution of excess cash and a focus on return on capital aligns themselves to shareholders.
The Numbers
Most of the key financial metrics look good at GW. In the last six years:
- gross profit margins have been between 68 and 77%;
- operating margins between 10 and 16%; and
- ROCE between 27 and 59%, averaging 42% (their figures).
Over these six years they’ve paid out dividends of £81m, slightly more than free cash flow. (and more than their market cap back in 2008).
The balance sheet is healthy with net current assets of £16m at last year end. No borrowings, no pension deficit.
Since 2000 they’ve only lost money in 2007.
Moat
There is much to suggest that this is the sort of company that Warren Buffett would admire, and Sandford Deland’s Buffettology fund used to have a disclosable holding.
GW:
- is a global leader in a fragmented market;
- generates high margins;
- targets a high ROCE;
- has strong and lasting brands (eg Warhammer);
- has a wide ranging distribution network;
- benefits from scale;
- no concentration of customers or outlets;
- has been around a long time; and
- quickly pays out excess cash.
Competitive pressure is more likely indirect coming from digital distractions on people’s free time, but there’ll…
