Games Workshop Group PLC

Games Workshop Group PLC (LON: GAW) is an FTSE 250 listed gaming company that makes miniature wargames. Some of its well-known products are Warhammer Age of Sigmar and Warhammer.

The Group expects to release its full-year trading update for the year ending 29 May 2022 in June 2022.  

Investment Rationale for Valuation – Buy at GBX 6,420.00

• Trading Update: On 24 March 2022, the Group has updated that trading in the three months to the end of February 2022 has been in line with expectations. The board has also announced a dividend of 70 pence per share, which was paid on 13 May 2022.
• Decent Fundamentals: The company posted revenues of £191.5 million in H1FY22, compared to £186.8 million in the previous corresponding period.
• Operating Profit: Operating profit grew to £94.2 million during the six months period to 28 November 2021 at constant currency, compared to £92.0 million posted in the previous corresponding period.
• Technical Indicator: The price of the stock is hovering near the lower Bollinger band with 14-day RSI level of ~31.14, illustrating an upside potential in the stock price.  

Key Risks

• Input Cost Risk: Inflation has been reported at 40 year high of 9% in April 2022. The company is exposed to the risk that its suppliers will pass on the increasing costs, thus impacting margins.
• Currency Risk: The Group's business is prone to the impact of fluctuations in the currency which can have an adverse impact on the company's financials.

Financial Highlights (for the six months to 28 November 2021, as of 11 January 2022)

(Source: Company Website)

• Cash Flow from Operations: The Group reported cash generated from operations at £76.4 million during H1FY22.
• Dividend: The company paid dividend per share of 115 pence in H1FY22, up from 80 pence paid during H1FY21.

One Year Share Price Chart

(Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)  

Conclusion

The management has opined that it is focused on delivering quality miniatures to its customers and generate decent returns for its investors.

The stock made a 52-week high and low of GBX 12,310.00 and GBX 6,365.00, respectively.

Based on the uptick in revenues, decent trading update and support from the valuation as done using the above method, we have given a “Buy” recommendation on Games Workshop Group PLC at the current market price of GBX 6,420.00 (as of 13 June 2022, at 10:45 AM GMT+1) with lower double-digit upside potential based on 18.60x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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