Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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Wish I had the spare money to buy these when they went down to £35 ,gutted
Back to all time highs.... market looking through covid impact...
Looks like we are heading back to 7000p here
Continued from below...... On one measure margins are 33pc and, as we point out ad nauseam, high margins tend to mean high returns on capital and good cash generation, two key advantages that enable a company to grow without the need to borrow and compound returns over the long term. But in Games Workshop’s case the returns are truly extraordinary: the return on invested capital last year was 100pc, the highest figure that to Questor’s knowledge any of its stocks has achieved. Cash conversion was 88pc last year.
The company also has net cash of £29.2m on its balance sheet. “When you make such high returns there’s no need to try to amplify them by using borrowed money,” Mr Dawes said. He also likes companies in which managers have significant stakes and Tom Kirby, the former chairman who was instrumental in the firm’s growth, has 4.8pc of the shares. We might expect Games Workshop’s huge returns to attract a stratospheric valuation but the multiple of 30 times this year’s expected earnings is attractive for a fast-growing company.Games Workshop is one to buy and hold for the long term – certainly for long enough to see the fruits of the collaboration with Frontier, which is expected to release its Warhammer Age of Sigmar game in late 2022 or shortly afterwards.
Games Workshop makes a return on capital of 100pc a year, the highest figure that this column has come across. “Good things tend to happen to good companies. Bad things tend to happen to bad companies.”
This is how one fund manager explained his preference for “quality” stocks as opposed to the cheap ones that appeal to “value” investors.
One company to which good things seem to be happening is Games Workshop, which sells figurines based on characters from fantasy stories such as Lord of the Rings.
Earlier this month investors heard details of a new partnership with Frontier Developments, another “quality” company, whose shares have gained 47pc since we tipped them in March. Frontier will develop a video game based on Games Workshop’s Warhammer Age of Sigmar franchise.
Benji Dawes, whose Premier UK Growth fund owns a stake in Games Workshop, said the agreement with Frontier could give a “very material” boost to the former’s profits.
“While Games Workshop is known as a retailer, it has a lot of intellectual property that it could make more of. This deal is a step in the right direction,” he said. “Recent video games from the Warhammer series have sold up to six million units so there is reason to think the Frontier game could achieve at least three million. "They may sell for around £40 each and if Games Workshop’s royalty rate is in double figures you are talking about its share being at least £12m and potentially much more. That money is effectively pure profit. In the context of current earnings of £87m before interest and tax, that is a lot.” Many other opportunities exist to turn the firm’s intellectual property into an income stream, although Mr Dawes said it was keen not to alienate its fan base by striking the wrong deals and tended to move slowly. However, since it increased its dialogue with customers over social media a couple of years ago, the fund manager said it had a much better idea of what they wanted from future projects.
One promising possibility is the firm’s agreement with Marvel, which could result in a comic book series based on the Warhammer franchise. Details could come later this year, Mr Dawes said.
He added: “Lots of media companies want to form partnerships with Games Workshop and we think it has reached an inflection point as far as the exploitation of its intellectual property is concerned.” However, sales of physical products such as figurines and board games still account for 90pc of sales, although here too there are opportunities for growth.
About half of this business is already carried out online or via third parties and these relatively low-risk approaches can be used to sell more in markets such as China and Korea, where games are popular but penetration is low. The firm already has a significant presence in America and is growing in Germany. Overall, sales grew by 44pc, 40pc and 16pc in 2017, 2018 and last year respectively. Profit growth was even stronger.
Great article by Questor in the DT this morning saying that GAW has the highest ROCE that Questor has ever come across and is now taking advantage of its intellectual property, with the agreement with Frontier developments. Lots more to come. Great long term hold.
Over £3,000,000 in trades after hours, mostly at the full asking price.
Wonder what tomorrow will bring?