Games Workshop Group Plc – Resilient financial performance despite Covid-19 outbreak.

Games Workshop Group Plc (LON: GAW) is the FTSE 250 listed real estate Company, which is engaged in designing and manufacturing of fantasy miniatures and related products.

The Company will announce its half-year results on 12 January 2021.

Investment Highlights - Games Workshop Group Plc – Buy at GBX 9,800.00.

• The Company has estimated 53.58% growth in its pre-tax profit for H1 FY21, and upgraded the profit forecast third time in the last three months.
• The newly opened 23 retail stores have generated £1.6 million of profitable sales during FY20.
• The Company is having a significantly high return on equity and return on asset of 59.37% and 41.91%, respectively, well above its industry median of 13.6% and 7.9%, respectively.
• The stock has outperformed against its benchmark index and delivered a lucrative 12-months return of ~75.15%, while FTSE 250 has generated -8.71% returns.
• From a technical standpoint, the Company is trading at a stock price more than that of its 20-day simple moving average (GBX 9,772.5), indicating an uptrend in the stock.

Key Risks

• The uncertainty around the business outlook might impact sales of the Company.
• The macroeconomic disruptions may cause significant project delays.
• The ongoing challenges of Covid-19 pandemic and Brexit may increase its operating cost and hamper business activities.

Pre-Close Period Trading Update (for the six-months period ended on 29 November 2020, as on 7 December 2020)

• The Board is anticipating the sales growth of 20.0% to £185 million for H1 FY21 ended on 29 November 2020 and its pre-tax profit of at least £90 million for H1 FY21 while it was £58.6 million for H1 FY20.
• The Board has announced a dividend of 60 pence per share to be paid on 25 January 2021.

Recent News

On 19 October 2020, the Company has updated regarding the appointment of Sally Matthews as the Non-Executive Director of the Company with effect from 1 November 2020. 

On 18 September 2020, the Company has updated regarding the appointment of Elaine O'Donnell as the Non-Executive Chairman of the Company with effect from 1 January 2021. 

FY20 Financial Highlights (for twelve months ended on 31 May 2020 as on 28 July 2020)

(Source: Company result)

• The revenue of the Company grew by 5.1% from £256.6 million for FY19 to £269.7 million during FY20 out of which 29% sales were through own stores, 52% of sales were through independent retailers and remaining 19% through online sales.
• The core business operating profit has increased by £3.3 million to £73.2 million for FY20.
• With regards to its financial position, The Company has generated £94.4 million of cash from operating activities during FY20 ended on 31 May 2020.
• The Group has opened 23 new retail stores, including seven relocated stores.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has delivered a resilient financial performance for the six months ended on 29 November 2020, anticipating sales and pre-tax profit much ahead of its expectations. Despite major headwinds like the postponement of major projects and government restrictions, the Company has given a good performance. From a long term perspective, the Company has maintained gross profit in the range from 65% to 75% well above its industry median of 47.2%.

On the technical front, the Company is trading at a price more than its 20-day simple moving average of GBX 9,772.5 The Company has outperformed against its benchmark index, FTSE 250 and generated a much higher 12-months return. The stock made a 52-week low and high of GBX 3,564.00 and GBX 12,159.50, respectively.

Based on its resilient financial performance and support from the valuation method shown above, we have given the "Buy" stance on Games Workshop Group Plc at the current market price of GBX 9,800.00 (as on 08 December 2020, before the market close at 10:30 AM GMT), with lower double-digit upside potential based 35.52x Price/NTM Earnings (approx.) on FY21E Earning Per Share (approx.).

Ted Baker Plc – Significant impact of Covid-19 on its financial performance.

Ted Baker Plc (LON: TED) is the FTSE AIM All-Share listed Company, which is the UK-based lifestyle Company. The Company operates through three segments, i.e. retail, wholesale and licensing.

Investment Highlights - Ted Baker Plc – Avoid at GBX 112.50.

• The underlying loss before tax have worsened to £39.0 million for H1 FY21 and following a declining trend.
• The operations of the Company was highly impacted by Covid-19 and resulted in the closure of stores due to government-imposed lockdown.
• The Company has relatively weaker liquidity than its industry having a current ratio of 0.82 in comparison to its industry median of 1.80.
• The Company has underperformed against its benchmark index FTSE All-Share and generated a lower 12-months return (-70.67% vs -13.05%).
• From a technical standpoint, the Company is trading at a stock price (GBX 112.50) lower than that of its 20-day simple moving average (GBX 128.8), indicating a downward trend.

Key Risks

• The outlook in the retail sector remains uncertain increasing pressure on customers.
• The second wave of Covid-19 pandemic may cause disruptions in the business environment of the Company.
• Unpredictable VAT and customs duty regimes may impact the business environment of the Company.

Recent News

On 01 September 2020, the Company has announced the appointment of Colin La Fontaine Jackson as a Non-Executive Director with immediate effect.

Financial Highlights (for 28 weeks ended on 08 August 2020 as on 07 December 2020)

(Source: Company result) 

• The Company has reported a 45.9% decline in revenue to £169.5 million for H1 FY21 ended on 08 August 2020 due to closure across most territories.
• The underlying loss before tax has worsened by £36.3 million to £39.0 million for H1 FY21.
• The Company has generated positive free cash flow of £60.8 million as of 08 August 2020.
• With regards to its financial position, the Company has a net cash balance of £60.8 million as of 08 August 2020 due to sale of the Ugly Brown Building for gross proceeds of £77.8 million.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The bearish consumer sentiments towards the retail sector have produced a major obstacle for the Company. Retail stores have been adversely impacted by the ongoing restrictions on trade during Q3 FY21, and sales have been contracted by 53% year-on-year, reflecting a material decline in footfall and closure of stores for a substantial part of the period. The duration of uncertainty around Covid-19 is still unknown, and hence it would be challenging to determine the business outlook. The Company has not announced an interim dividend due to its weak trading environment. On the against its benchmark index, FTSE All-Share and generated technical front, the Company has underperformed -70.67% yearly return. The stock made a 52-week low and high of GBX 59.57 and GBX 369.68, respectively.

Based on the weak financial performance and elevated levels of uncertainty, we have given the "Avoid" stance on Ted Baker Plc at the current market price of GBX 112.50 (as on 08 December 2020, before the market close at 08:30 AM GMT), while we will revisit our recommendation when the situation becomes favourable. 

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.

Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.