Games Workshop – Investing in a hobby

When it comes to investing hard-earned cash into shares with a long-term viewpoint, I prefer to invest in a company I have some interest in. If it’s an interesting Tech company like Tesla or an everyday brand I’m familiar with like Coca Cola, I can take the dips without worrying too much as I believe in the long term.

For me the games workshop group plc (LON: GAW) is one of these companies but not just because I’m a massive nerd! I also think it has all the fundamentals to be a great company for many years to come.
Games workshop at its core creates miniature plastic figurines which customers use to create armies or small units to do battle within a tabletop setting. A key point to mention is, not only do they own the intellectual property behind the universe it’s set in they also makes there own products at its manufacturing base in Nottingham which they sell in there own stores around the world, leading to an impressive 75% gross margin, up 6 percentage points from last year.

The Fantasy world they’ve created throughout the years has to lead to a huge inflow of royalty income from licensing out its intellectual properties to game developers. the games themselves help reinforce the brand and attract new and old players alike back into the Games Workshop fanbase while providing what is essentially pure profit for the company.

keys to success in 2020

–Returning players with new attractive boxsets

Scores of returning players have been enticed back into the world of plastic mini-figure addiction. Their latest products have been heavily featuring figures that would have been around 20 years ago re-igniting passions from childhood.

–Covid has caused an increase in home-based hobbies

with half the world in some sort of lockdown or social distancing, outside of the home activities are at a minimal. Luckily for GW, a big part of there product can be done in solitude(making and painting their miniature figures)
-New update to there core product 40k with revisions and updates to existing armies
spiking demand and interest

–Engaging with the customer base

Kevin D. Rountree took the reins of GW back in 2016 he got to work engaging with the customer base and doing market research. This sounds obvious enough but previously GW had very little community engagement and 0 market research.

–Covid

A surprising fact about GW is that a relatively small portion of the customer base plays the game with the vast majority of customers being collectors/painter-hobbyists which is fine for those quarantined/in lockdown around the world.

–Publishing rights to produce figures

GW have the rights to produce figures for many notable franchises such as Judge Dredd, Doctor Who and Lord of the rings.

What the future of Games Workshop

– Expansion of there video game collection

The Warhammer branded Total War game has become one of the best selling franchises out of all the total war games. There are several games workshop licensed games currently in development which could lead to massive royalties as well as converting some of the video game fan base into hobbyists.
-Rapidly releasing much-needed updates to there core products
massive overhauls to the existing line up can re-ignite demand for certain figures, However, the rate at which they’ve been able to make the changes implies the infrastructure is there to be reactive and adaptive to the customer base.

–Social media growth

Social media for big business has been a focal point in many years, GW products lend themselves to social media content surprisingly well. GW own social media channels on twitch and youtube have been a great way to interact with the community providing teasers for upcoming projects as well as showcasing work from within the community. There has also been a steady rise in prominent YouTubers creating content related to GW, from Painting and crafting to actual live battles.

–Huge influx of new and returning players

The current schedule of releases has a focus on keeping current and returning players happys there’s also the new beginner-friendly starter sets.

 

-Games Workshop Dividend Yield

With 2020 over Games workshop group plc (ticker symbol LON: GAW) stock rose 54% over the year an impressive number, what’s even more impressive is if we travel back Five years ago, the share price stood near 540p. Today, the stock changes hands near 10,825p. 1823.15%

With a Dividend yield of 1.64%  (dividend cover is also 1.51)and a market cap of £3.7 Billion, it’s hard not to like the financials especially with its pre-tax profits growing £8.1 million a year (£89.4 million 2020) However its P/E ratio of 51.67 is relatively high mean its current price is not exactly value for money while the earnings per share are 218.70p.

 

I believe in the long term success of GW, Whilst I don’t think we’re going to continue seeing the percentage gains we have done over the last five years I think it’s still a relatively safe bet. Key factors Such as lack of any real competition, Having ownership over all levels of the business and finally the intellectual property which they’ve developed over the past 30+ years