Games Workshop And SDI - Final Results Round Up

28th Jul '20 by Jack Brumby

27 comments 5033 reads

It’s results week, which means it’s time for unsuspecting investors around the country to spit out their coffee as they’re overwhelmed by the semi-annual barrage of RNS releases and trading updates.

Today’s new news is Games Workshop’s well-received annual report, but I’ve taken another look at SDI as well, which released Final Results on the 21st.

Games Workshop has broken the 9,000p barrier - an amazing achievement - so let’s dive right in.

Games Workshop (LON:GAW)

QM Rank: 98
One-year relative strength: 121%
Share price: 9,065p
Market cap: £2.76bn

Annual Report

(I hold)

Games Workshop (LON:GAW) is officially a large cap - that’s some feat for this exciting growth stock. Shares are up 9% on today’s Annual Report, meaning GAW sails past the 9,000p mark.

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This group designs, manufactures, and sells fantasy miniatures and related products in both its own stores and third party trade outlets. Alongside this, it has an online store and a growing licensing division that sees games makers and other media providers leverage GAW’s IP.

It’s been a fantastic ride for shareholders since 2016 and a real case study in ‘running your winners’ so far:

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Despite the challenging backdrop, this was another record performance from the Games Workshop team: a fourth year of record constant currency sales, profit and cash generation.

These annual reports are always a pleasure to read. When you find management commentary that is unique, colourful, and distinctive it shows that the team is not just phoning its performance in to shareholders. Another company that jumps to mind in terms of distinctive commentary is Goodwin. Any others out there people know about?

GAW's performance since 2016 has been stratospheric and the management team continues to execute against a substantial global market opportunity.

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COVID disruption

The group says that after a great 2019, performance in H1 and into H2 was strong until COVID forced GAW to close down its business on 24 March 2020.

In April, the group reopened. That GAW ended the financial year with revenue of £270m and profit before tax of £89m is a ‘tremendous’ achievement according to chairman Nick Donaldson.

Around six weeks of sales and profit were lost as a result of COVID. I’m going…

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Greedo

28th Jul '20

I have been saying same thing for many many years. Always too expensive for me - but it keeps going up with results to match.

I finally booked a small position last Friday

martinji

"Very much interested to know if anyone is holding Games Workshop (LON:GAW) from 2016 and what was the reason to buy it back then?"

I bought into GAW in Sept 2015. From memory my main reason was simply on valuation grounds and yield. I wasn't using stocko at the time, but looking at the stock report from Sep 2015, I see it was on a P/FCF of 11.9 with net cash on the balance sheet, a yield of 6% and a high ROCE. Profit had also sharply improved from 2014 to 15 although top line revenue was slightly down.

Of course I wouldn't buy solely on numbers, I also considered their forward prospects. I don't think I ever imagined the level of growth they've delivered since, but I thought they'd have sticky customers and the base case would be plodding along going nowhere but delivering a comfortably covered 6% yield each year and with a bunch of IP effectively thrown in on top, that might pay off in future years.

I was aware of the negative sentiment though and together with the fact that the revenue had declined two years in a row, meant I only took a small starter position. This is a tactic I often use, as I find my opinion then matures as I follow the newsflow. I added more in 2017 & 2018 and have held since. It's now my largest position.

wildshot

Hi msirius, yes I believe I'm one of the historic holders you are looking for.

I initially bought in back in Aug 2011 at a price of £4.50. A colleague of mine at the time used to work for them and as we discussed shares he told me about them, I did some research and liked how they'd capitalised on Lord of the Rings and how he explained they had a dedicated following.

I sold most of my holding in Dec 2013 at a price of £7.05. The company had appeared to have lost a bit of direction in recent times by then, falling share price and if I remember correctly dividends were less frequent. I did however retain a small holding to track how it was performing.

I did once see a GAW employee (he had corporate clothing) on a plane and I initiated conversation with him on how I was a holder and had been impressed with the company and their performance. The conversation reaffirmed my views of the company.

Then in November 2015 I bought a half (1/2 my full holding level in a company in my portfolio) at a price of £6.11. This was a time when I was reorganising my portfolio. I was sensing change coming with the company and wanted to latch onto their forecast high yield at the time. If only at the time I'd gone for a full holding!

So my average cost per share in my holdings now of GAW is £5.90. It is by far the best performing share I have held, beating the likes of 4imprint (LON:FOUR) which has also done well for me.

tim boddington

Great article: this was the first share I bought with Stockopedia back in April this year and it has not disappointed!

William K

As Jesse Livermore once said, and many have repeated: 'The price is never too high to buy or too low to sell.' In the absence of any bad news, I think Games Workshop (LON:GAW) price can reach £100 by the end of the year. (I hold, having bought in February at 7085 and bought more in June at 8000.)

Thefisher

Modest dilution of SDI is perfectly great if it is clearly EPS and value enhancing. This has been the case so far so you shouldn’t be so critical about it.

Harry Hindsight

£GAW

In my day it was painstakingly painted Napoleonic soldiers. Suppose nowadays better things to do with your time like Fortnite :). Shops would be a negative but these seem to be fan meeting places. On the basis of these posts I will put the Cuirassiers back in the box and stick the 'ugly looking thing' into my ISA and forget about it. If they build a brand in China, good god how high can a share go.

Anthony Ashworth

I looked at GAW in 2014 at around £7-8 per share, but couldn't convince myself where the future growth would come from - Clearly got that wrong!

I eventually bought in on the dip to £40 back in March. One of my better decisions in the last year. A little concerned on valuation grounds now about what even a hint of bad news might do but I am happy to stay invested for now.

Thanks for the great analysis.

mojomogoz

Lots of people love Sdi (LON:SDI)

I don't have a strong view, however...

I bet if they traded at 9x earnings for a period (say 15 mths) as they'd had a sticky patch for whatever reason that people would be rushing to sell it as a dog rather than loading up as its great value.

Why? They can do the magic of their money being more valuable than other people's money so well when they look to buy (dull, limited growth?) little engineering shops.

29th Jul '20

This comment is under review

shipoffrogs

SDI benefits from the premium attached to being a public company and the discount attached to small private businesses. If it's buying these at 3 or 4 times earnings - the outcome will be very satisfactory.

Okay...any accountant can play that game.

I'm surprised there are any little businesses left to buy up. Dull little AIM industrials and conglomerates often trade at a discount when everyone sobers up...

Nil point (IMO obvs). Next

JamesS

Slight aside, for an example of how dedicated customers are to the Games Workshop (LON:GAW) product https://www.youtube.com/watch?v=O7hgjuFfn3A is worth a watch. Created at home by one guy not affiliated to GAW at all

Back on to the topic, it is worth noting that a new edition of Warhammer 40,000, the most popular game that Games Workshop produces, has just been released with all the new rules that entails. In addition Space Marines, the poster boys for Warhammer 40,000 and the company in general, are effectively being re-released. These should be a nice bonus to sales this year.

To me the growth is going to come from North America before Asia, based on the similar "Western" culture. With 160 stores in NA compared to 140 in the UK there is decent scope for growth, as I think it shows the market is not as saturated yet.

I think potential future risks are that the IP that they possess cannot be turned into sales to a wider audience, the view that the products are only for "nerds".

I also would be interested to see how much revenue is derived from the increasing price of the miniatures. 10 space marines 10 years ago were £15-£18. Now they are £30 so a bit higher than the rate of inflation .

Happy holder since April this year

NeilS

31st Jul '20

Fine

8th Nov '20

Games Workshop (LON:GAW) has just announced that results will be better than expected (I hold). At £114.60 the price has increased around 25% since July and shows no sign of falling away, despite being 'expensive' (which it's always been!). The share seems to have the Amazon attribute of always being overpriced and then going on to be more overpriced. It clearly has a quality that baffles ordinary investors. I read somewhere - possibly on this forum - there was a possibility that the company might be bought by an American giant like Disney. Does anyone have any thoughts on this?

CamRaid

I hold Sdi (LON:SDI) and topped up at 44p during the first lockdown. Interims are due in December and I suspect they will be pleasing on the eye.

It will continue to grow through acquisition but also organically. There is a good incentive scheme in place for the directors to obtain 10% of the shares.

Alongside the growth strategy is a value play. They acquire the acquisitions at 4-5 X EBITDA. The market values the business at 15 X EBITDA so immediate value is added.

Broker target price is 110p so 37% above where we are now..

LeopoldAlcocks

IP like that is rare and in high demand. It would fit Disney well, with the possibility for films and possibly even a parks spin off

Jeremy Rea

9th Nov '20

I'm not sure how well it would fit with Disney. The IP is great and could be exploited/expanded/wrecked (see Star Wars) by the likes of Disney, but my issue is more with the material itself. Warhammer 40k is very very dark, hence the moniker "Grim Dark". I'm not sure how well that would sit with Disney and their family appeal. Star Wars has its dark moments but at its core is a family franchise about good winning out in the end. I'm not sure 40k has that happy ending in sight.

I could be wrong and Disney could buy it tomorrow but I'm not holding my breath.

Thanks Weasel and pkr1988. For me it's one of those shares that I'm comfortable to hold long term, regardless of takeover potential, unless something bad happens to the company. Yes, it is a bit dark for Disney but one never knows.

Kevin Holloway

22nd May '21

a bit of nostalgia for any Games Workshop (LON:GAW) fans.

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Games Workshop and SDI - Final Results round up

Games Workshop (LON:GAW)

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Jack Brumby

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