Games Workshop customers love a battle. So too, it seems, does its board.
The FTSE 250 retailer generates most of its turnover selling table-top figurines for The Lord of the Rings, Warhammer and other fantasy settings. The Nottingham-based outfit also gets royalty fees from licensing its intellectual property to video games studios. And there is a streaming service nearing release called Warhammer+, which will offer gaming, tutorials and animated shows.
This is all a long way from the company’s roots in the 1970s, when three friends began to make wooden board games. Former tax inspector Tom Kirby joined in the 1980s and steered the business towards fantasy worlds.
Games Workshop has been a rare high street success in recent times. Lockdowns boosted its sales, with pre-tax profits rising by nearly 70 per cent to £150 million in the year to the end of May 2021.
The shares have had a great run overall since we tipped them at £31 in December 2018. On Friday night, the closing price was £96.60 — a 200 per cent rise over less than three years. Investors have also received a strong run of dividends.
However, Games Workshop’s directors are now embroiled in a skirmish with some of its customers, mainly because of the retailer’s tougher stance on protecting its intellectual property.
It has clamped down on fans who rip off its miniatures by using 3D printers — not unreasonably. Rather more brutal is its decision to turn its guns on devoted fans who spend hours making animations.
“Individuals must not create fan films or animations based on our settings and characters,” the company’s new edict reads. “These are only to be created under licence [from us].”
Analysts at investment bank Jefferies recently noted that the policy had led to “a lot of negative community feedback”. Some 19,000 people have liked a Reddit post calling for a boycott of Games Workshop.
There is also something disconcerting about a public company that does not engage with the financial press. Newspaper readers are also shareholders. Put this all together and there are grounds to think that this is a management starting to believe its own hype.
Broker Peel Hunt has highlighted that margins will be lower this year than last, due to exchange rates, higher distribution costs and ongoing investment. Sales are still in good shape, but after a great run, the shares are already down more than 20 per cent since a trading update in September. Time to bank those gains. Sell.