Games Workshop powers ahead as sales hammer expectations
() again delighted its many fans with news that it had delivered pre-tax profits of £57m in the three months to 27th August 2023, a year-on-year jump of 46% as revenues grew faster than expected. It said that core revenue was up 14% to £121m as all its channels delivered growth, while licensing revenue had doubled to £6m.
The strong performance, alongside news of a 50p dividend which takes the total declared this year to £1.95 a share against £1.20 last year, saw the shares jump 10%. The company’s policy is to distribute truly surplus cash, and the increased dividend is indicative of just how cash generative the company is – last year, the ratio of operating profit to operating cash flow stood at an impressive 156% (anything above 100% is considered a strong performance).
The latest jump means the company’s shares have recovered all the ground lost as fears of interest rates hit highly valued growth stocks last year. And while that means the shares again look expensively rated on a PE of nearly 25 times forecast earnings, that’s clearly supported by the quality of the business – high operational gearing that sees profits grow faster than sales and returns on capital employed approaching 60%.
The continued growth in licensing revenues is also good to see, being almost pure profit – investors and fans will be awaiting the Warhammer based Amazon series – produced by and starring superfan and former Superman Henry Cavill - with bated breath. From a financial point of view, a successful show is likely to further broaden the game’s appeal, as well as underpinning further licensing growth.
Games Workshop included the obligatory warning that it’s still early in the financial year. But so far, it’s shrugged off any impact of consumer belt tightening in the wake of the cost-of-living crisis, suggesting that its customers are both loyal and unperturbed by the high prices of Games Workshop’s products which help it generate extremely high gross margins, which are almost 70%.
Prior to the update, brokers expected sales to climb 2.8% to £484m in the year to May 2024, delivering pre-tax profits 5.7% higher at £180.7m and EPS of 421.3p.
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