Games Workshop

What does the company do?

Games Workshop is a niche investment case. It's the world's largest and only table top hobby company who design, manufacture, distribute and sell high quality miniatures and related products, most notably through their consumer facing brand Warhammer. The company sell their products via 3 channels, retail, online and trade. In addition to this they then receive royalties from licensing their brand to third parties, predominately through PC games and board games. Success in monetising their IP will make this a much more meaningful contribution to the business over time. Their IP also creates a strong barrier to entry. Why do we like the investment? Whilst one may think the hobbyist market to be small and niche, the audience is global, of all ages and very loyal. The design and features of the games continually evolve to the delight of their demonstrably price inelastic and loyal customer base. Social media has bolstered the business and increased the reach of the brand, allowing a new online community to emerge. Social media engagement, and even online sales, is something the management have only embraced in recent years and has really been a game changer for driving sales and attracting new customers. The strength of the business model and its fundamentals (high margin, high returns with a strong balance sheet) make Games Workshop a compelling investment. In addition to growth from the core business, we will see strength from geographic expansion, particularly in the US where they now have a credible base as well as potential upside from increased licensing opportunities. Licensing opportunities are of particularly high margin. They are investing in capacity to ensure the business is capable of managing the strong growth in demand they are seeing. This business has an excellent track record of delivering earnings growth, and with no direct competitor and strong market opportunity for all parts of the business we see every reason for the momentum to continue. Their dividend policy is to pay out "truly surplus cash", however they look at their cash position on a regular basis and look to distribute surplus cash to requirements. The management team have increased their awareness of reporting on ESG credentials, and have initiated several projects internally to improve their sustainability aspects, and engage with shareholders as to their progress.