Games Workshop (LSE: GAW) shares are up 4.6% so far today after the miniature wargames company released a preliminary year-end trading update.
This means the share price is now 65.75% higher than a year ago, having moved from £60 to just over £100 at present.
What happened
For the 52 weeks ended 28 May, the company says it expects core revenue of at least £440m. That would represent year-on-year growth of around 14%. Meanwhile, the group’s pre-tax profit is forecast to come in at no less than £170m, up from £157m last year.
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However, the firm is expecting licensing income to total £25m, down from the prior year’s £28m.
Games Workshop also has an admirable policy of sharing a portion of its profits with its employees. So, “in recognition of our staff’s contribution to these results“, it distributed £11m in payments during the year.
Needless to say, this is an impressive set of figures considering the cost-of-living pressures its customers have been facing. It’s not surprising that the market is applauding this update.
Amazon partnership
Games Workshop is celebrating the 40th anniversary of Warhammer this year. To mark the occasion, Royal Mail is launching 10 commemorative stamps featuring distinctive imagery from across the fantasy worlds of Warhammer. That means stamps adorned with Space Marines, Orks, Slaves to Darkness and the like.
This demonstrates how popular this niche hobby has become today. Indeed, the firm describes Warhammer as “a true home-grown British institution“, and I wouldn’t disagree.
Amazon certainly thinks this is the case, as the tech juggernaut’s Studios unit has agreed a partnership to create a licensed Warhammer 40,000 TV series and film. British actor Henry Cavill is confirmed to star in and produce this content, which could bring in legions of new fans.
However, it should be noted that this deal is only agreed in principle. So there’s a risk this intellectual property (IP) licensing agreement could still falter. After all, Games Workshop is extremely protective of the Warhammer brand.
In fact, this is often highlighted by the company as a risk. It says: “It is imperative that exploitation of our IP through media channels does no harm to our core business.”
So, while the expected Amazon projects are exciting and could turbocharge the company’s bottom line, there’s still a danger that the content disappoints lifelong customers. For example, the adaptation may struggle to capture the uniquely grim setting, thereby failing to do the franchise justice in the eyes of fans.
A premium valuation
The stock never really seems to be cheap, at least compared to the wider market. Today, the stock is trading on a price-to-earnings (P/E) multiple of 26. That’s more than double the FTSE 25O average.
But I do believe that the shares deserve a premium valuation. After all, Games Workshop remains the largest and the most successful hobby miniatures company in the world. It has a very powerful and unique brand.
Plus, its customers are incredibly loyal and engaged. Its new Warhammer 40,000: Leviathan boxed set, which launched the 10th edition of the tabletop wargame, sold out online over the weekend. And that was in the UK, EU and the US.
If I didn’t already own the stock, I wouldn’t hesitate to add it to my portfolio today.
