Shares in fantasy miniatures group Games Workshop (GAW) dropped 7.7% to £107.4 despite reporting a 27% year-on-year increase in first half revenue and 57% growth in operating profit.
Having delivered first half profit just above prior guidance, there was some disappointment that recent trading was merely 'in line with expectations.'
SUFFERING FROM SHIFT TO VALUE
The strong past performance in the shares combined with shift in investor focus away from companies benefitting from lockdown after the first vaccine was announced in November is contributing to today’s weakness in the shares.
Revenue in constant currencies grew 27% to £186.8 million which led to a 57% growth in operating profit including royalty income to £93.2 million as the company demonstrated positive operating leverage.
Increasing volumes led to higher gross margins of 75% compared with 69% last year while the cost to sales ratio dropped to 28% compared with 36%, leading to a higher operating margin of 49.5% (39.9%) including royalty income.
As we have previously noted the high operating leverage at Games Workshop means that it converts a high percentage of incremental revenues into profits.
Of the £39.8 million growth in revenues, £34 million was turned into incremental operating profit, representing a ratio of 85%.
ONLINE SUCCESS
The 529 retail stores remained closed or restricted during the six months leading to a 19% fall in revenues, but this was more than offset by online channels which grew 87%.
Cash generation improved by £40 million to £100 million, an improvement of 65% on the prior year leaving the group with period end cash equivalents of £96.5 million.
A dividend of 60p was declared on 7 December 2020 and is due to be paid on 25 January 2021.
