Games Workshop Group PLC – Decent PerformanceAmid Elevated Global Volatility and Shown Better Than Expected Recover Since Re-opening

Games Workshop Group PLC (LON: GAW) is a FTSE 250 listed miniature wargaming product manufacturing company. The Company is engaged in designing, manufacturing and distribution fantasy miniatures, metal soldiers and rulebooks.

Trading Update
On 12^th June 2020, the Company provided the trading update for the financial year ended 31^st May 2020. The Group said the closure of operations due to Coronavirus pandemic hurt trading; however, recovery since re-opening has been better than expected. GAW said it has continued to re-open operations globally with 306 out of 352 total stores now open in 20 countries. The warehouses are operational, and the factory is working in a limited capacity. The Company estimates sales to be approximately GBP 270 million and profit before tax to be no less than GBP 85 million in the year ended 31^st May 2020. On 31^st May 2020, the Group’s cash balances are estimated at approximately GBP 50 million, and it has put in place a GBP 25 million overdraft facility.

Share Price Performance Analysis

1-Year Chart as at June-12-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 12^th June 2020, Games Workshop Group PLC’s shares closed at GBX 7,720.00 and were up by 8.73 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 8,090.00/GBX 3,564.00. The RSI (14) is moving downwards from the top.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the Price to Earnings, EV/EBITDA and Price to Book multiples of the GAW were 39.3x, 29.8x and 24.3x, respectively and the same multiples were higher as compared with the Leisure Goods industry. It is reflecting that the company is trading at a higher multiple as compared to its peers.

Risk Assessments
The Group operates in a competitive market, excessive competition could affect the Group’s revenue and profitability. There are some principal risks and uncertainties, which could impact the overall business of the company. The decline in market demand for the company’s products could affect the revenue of the company. The continuing uncertainty presented by the coronavirus (COVID-19) outbreak.

Conclusion
Games Workshop Group PLC has a decent and scalable business model. Also, the company has a consistent track record of paying a decent dividend. The company’s operations would be impacted by the uncertainty created over the Brexit, as it could disturb the company’s supply chain. Going forward, the store closures and lockdown scenario amid Covid-19 contagion would further affect the financials in H2 FY20 and eventually full-year results. In the longer term, when the trading environment normalises, the management is confident that the company can navigate through the unprecedented crisis created by COVID-19 and deliver its strategy over the longer term. Besides, short term uncertainties, the management is confident about the financial strength and upcoming strategies to tap the long-term future opportunities.

Keeping in mind the risk associated to the company’s performance, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 7,720 (as on 12^th June 2020), while we look for any upcoming catalysts.

Watches of Switzerland Group PLC – Decent Performance in the Current Challenging Environment

Watches of Switzerland Group Plc (LON: WOSG) is a FTSE 250 listed personal goods company based out of the UK and engaged in the business of retailing of watches. The Group operates through its own stores, Mayors and Goldsmiths stores and Mappin and Webb stores.

Trading Update
On 14^th May 2020, the Company provided the following financing update and unaudited pre-close trading update for the 13- and 52-weeks ending 26 April 2020. Group revenue increased by 5.9 per cent to GBP 819.3 million in the year to 26 April 2020 (FY19: GBP 773.5 million), ahead of the guided range of GBP 809.0 million to GBP 812.0 million, due to decent e-commerce sales. For the first 46 weeks of the year, the performance had been decent, with UK stores closed from 23 March 2020 and US stores closed from 19 March 2020. The sales of luxury watches rose by 19.3 per cent in the 46 weeks to 15 March 2020. During March 2020, the Group has acquired the Four Fraser Hart stores and were converted and integrated, with the decent initial response from clients prior to entering lockdown. On 13^th May 2020, the firm had GBP 265.0 million available facilities with GBP 83.0 million in the bank.

Share Price Performance

1-Year Chart as at June-12-2020, after the market close (Source: Refinitiv, Thomson Reuters)

On 12^th June 2020, Watches of Switzerland Group PLC’s shares closed at GBX 264.00 and were up by 1.93 per cent versus the previous day closing price. Stock 52 weeks High and Low are GBX 397.00/GBX 170.80.

From the technical standpoint, its shares were trading well below its short-term support level of 20-day simple moving average prices, which reflects a downtrend in the stock. The RSI (14) is moving downwards from the top.

Valuation Methodology


Valuation Metrics

(Source: LSE)

As on 29^th May 2020, the EV/EBITDA and Price to Book multiples of the WOSG were 12.9x and 8.7x, respectively and the same multiples were higher as compared with the Personal Goods industry. It is reflecting that the company is trading at a higher multiple as compared to its peers.

Key Risks
Any change in the spending pattern of customers might hamper the financial performance of the company. The launching of new operations might increase the regulatory risks for the company. Changes to economic conditions could lead to a reduction in demand for housing which could impact the company’s revenue.  The outbreak of COVID-19 has impacted the business performance of the company due to closures of its stores.

Conclusion
The luxury watch retailer company said it expects a prolonged downturn in lower-traffic (particularly in airports) post-lockdown, while e-commerce, CRM (customer relationship management) and clienteling will gain importance. The Group has started reopening shops in the US. Adjusted EBITDA (pre-IFRS 16) is expected to be in the range of £75-£78 million in FY20.With the travel restrictions imposed on travelling, the group witnessed a decline in the trading from travel and tourism business. Hence, the company expect the financial performance to reflect the historic issues inherited with uncertain market conditions in the financial year 2020.

Based on the headwinds faced by the group, we have given a "WATCH" recommendation at the closing price of GBX 264.00 (as on 12^th June 2020), while we look for any upcoming catalysts in the near term.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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