Games Workshop: Back To Reality And Into The Grim Dark

Apr. 29, 2020 1:05 PM ETGames Workshop Group PLC (GMWKF)17 Comments3 Likes
Karl Ahlstedt profile picture
Karl Ahlstedt


  • High growth momentum continues, margins hold up well.
  • The IP segment remains under-appreciated by the wider investment community.
  • Continued innovation remains the key risk moving forward.

Investment Thesis

Recent declines from circa £70 per share to circa £50 per share merited a renewed analysis of Games Workshop. The fundamentals remain solid, with the company well positioned to deal with any uncertainty caused by COVID-19. Growth momentum remains on track and profitability (and dividends) continue to grow at a rapid pace. The future looks bright for Games Workshop, and current prices indicate a good entry point for new and existing investors alike.


Games Workshop (OTCPK:GMWKF) (LSE:GAW) has been perfecting the art of high-quality miniatures since 1975, and this 43-year tenure has positioned the company for exceptional performance as growth in gaming continues at record rates throughout much of the developed world (Claremont, 2014). During this time, it has developed some of the most complex and complete fantasy and sci-fi universes that rival the likes of Star Wars and Lord of the Rings.

Kevin D. Rountree took over the role of CEO in 2015 and has exceeded expectations ever since. Since then, a number of successful changes have been made across the group.

Source: (Games Workshop, 2020)

The Track Record Tracks Higher

I first publicly reported on Games Workshop right here on Seeking Alpha back in January 2019, making my case that this is a fantastic company that would track higher over the year ahead. Back then, the group was trading at circa £30 per share and has since reached highs of £73 per share in early February 2020 falling back to £50.20 at the time of writing. Today I want to share my views on how the group has fared during the last twelve months and to explain why I am still adding to my position this month at circa £50 per share.

The business model of Games Workshop is truly out of this world (excuse the pun), on par with that of the good old days of tobacco and cigarettes. We are talking primarily about how the company produces plastic toy soldiers (albeit exquisitely detailed toy soldiers) and retails them at a price point of £3 per basic tactical marine solider and £6 per basic elite terminator marine. Commanders and special heroes retail between £13 for a basic commander to £90 for a special "primarch" type model.

We could also talk about Forge-world, a subsidiary of Games Workshop that creates specialist models for this tabletop game with substantially higher price points. A resin-based Manta would set you back a whopping £1,100, not bad for a model with variable production costs that could be measured in pennies.

Source: (Forgeworld, 2020)

This approach works for a few reasons, primarily it is the vast sci-fi universe created around the products that get fans chomping at the bit, and ready to pay the ever-increasing retail prices for what amounts to box of toy soldiers.

Founded in 1975, and with a substantial publishing subsidiary titled Black Library, Games Workshop has published well over 1,000 fully fledged works of literature between the 30k, 40k, and fantasy universes in the past 45 years. Anecdotally, this author's book-shelf has a growing collection of over 100 books published by Black Library, many of them being absolute gems in the sci-fi world and written by various prolific authors. Dan Abnett is a (personal) firm favourite, and previously worked on everything from Marvels Spiderman to Doctor Who before transitioning to primarily writing about the grim dark universe that is Warhammer 30/40k.

Source: (Black Library, 2020)

Furthermore, it is worth noting the company's expansion into video-games, leveraging its deep IP and licencing it out to practically any studio with a great idea and the expertise to pull it off. While some flop (I'm looking at you, Eternal Crusade) others go on to become mainstream hits. Most recently the Total War: Warhammer franchise stands out, which sold over half a million copies in its first few days, according to developers Creative Assembly. This title went on to sell an estimated 2.1m copies according to (perhaps unreliable) leaked information. Following this Total War: Warhammer 2 built upon its predecessor's success and received overwhelmingly positive feedback from critics and fans alike, selling approximately 2 - 5 million copies. Although the sources used for this are unreliable at best since Steam fixed the loophole SteamSpy used to gather its data. TWWH 3 is slated for release later this year and is likely to be another runaway success. Video-games provide a great way to get the Games Workshop brand in front of new audiences generally aligned with the type of products they sell, and in the author's opinion, continue to be a noteworthy source of promotion for the group.

Secondly, there is a strong sense of community within the group's customers. Most newcomers first experience of Warhammer will be in one of the many retail stores, where they will be introduced to the hobby through a practical hands-on game led by a member of staff. Once they have bought and put together their first army, they are invited to join the weekly clubs held at the stores to test their mettle against other fans from the surrounding area. Over time, bonds are built and the social attraction of the hobby becomes a firm reason for continuing to visit the store and to subsequently buy more models to participate in larger scale games. The energy at these events is outstanding, they promote a positive vibe and it feels good to nerd out with other hobbyists discussing the merits of one setup versus another. This is a company that led with an experiences-based approach to retail long before it became popular.

The Balance Sheet Remains in Great Shape

Firstly, there is no debt on the books, Games Workshop has remained conservative in not using financing activities to raise capital and instead keeps circa 50% of profits to be retained for further expansion and investment, paying the other 50% out as dividends to shareholders. This is in-line with management's ethos of distributing "only truly surplus capital back to shareholders".

Approaching financing in this way has placed Games Workshop in an excellent position to ride out the current COVID-19 pandemic, with a strong and healthy balance sheet, and plenty of cash on hand. The group retains the ability to raise substantial capital should the need arise (though this is unlikely to be the case).

In-tangibles continue to rise up just north of £6m between FY 2018 and FY 2019 to £18.05m, and this includes the world-leading IP in sci-fi, which remains significantly undervalued in the author's opinion. Moving forward the IP assets is likely to be a gold mine that won't stop giving.

Revenues & Profitability Continue to Soar

Revenues are up circa £23m for the second half of 2019 as compared to the same period in 2018 aggregating at £148.3m. Games Workshop is on-track to hit £300m annual revenues over the next few years (caveats from COVID-19 aside). As profit margins remain at a steady 30%+, this should come out at around £90m annual profitability in the upcoming year or two. In the author's opinion there is no reason to see why growth cannot continue at its current pace moving forward.

Dividends Grow & This is Set to Continue

Games Workshop continues to grow at a fairly rapid pace while returning circa 50% of profits back to shareholders. Now that the investments in the US distribution warehouse are complete, this may even rise slightly as a % unless management can find new opportunities to invest in globally. At the time of writing dividends remain at circa 3.5% and continue to grow as the table below illustrates.

Source: (LSE, 2020)

Dividends have grown at an average of 59% annually over the past 3 years as profitability continues to soar. The conservative approach in the execution of investment plans by management means this is set to grow, though perhaps not as fast as the rates seen in recent years.

IP Remains Under-Exploited

The scope for movies, tv shows, animations, and further expansion into video games remain perfectly valid paths to IP exploitation of Games Workshop immense IP catalogue. I talked about IP specifically in another article I posted right here on Seeking Alpha, and so I'll keep this section brief. IP revenues continue to grow rapidly, as management keep an open mind about new opportunities, and give a great deal of freedom to companies who approach the group seeking to create new digital and media content leveraging this IP. Games Workshop continues to build experience in both managing and negotiating licencing deals, and this is now feeding through to the bottom line in a meaningful way, as the table below illustrates.


Royalties Operating Profit:

% Change

Royalties Operating Expenses:




























Source: (Games Workshop, 2019)

The latest expansion here is the eagerly awaited debut of Angels of Death (Games Workshop, 2020) which is due for release later this year. This marks the first animated TV series the company is officially backing. Previously, a positively received fan-made series by Richard Boylan was released on YouTube. It was so good that Games Workshop has officially brought Boylan on board as a director of the new Angels of Death, which bodes for well for keeping it true to lore and is likely to be a success amongst the group's fan base.

This may well open the door to other TV and movie projects, which have largely been ignored since the flop that was Ultramarines: A Warhammer 40,000 Movie released in 2010 (IMDB, 2010).

Innovation Remains The Biggest Risk But So Far So Good

When the primary product is toy soldiers, keeping consumers engaged and interested on the face of it seems a big ask. However, Games Workshop has invested heavily in creative talent over the years and have managed to keep a steady stream of new releases that broadly speaking, keep fans engaged and happy to spend eye-watering amount on new plastic and metal figurines.

COVID-19 is Leading to Surprising Results (Including Superman Coming Out)

Henry Cavill, star of The Witcher Netflix show and all-round hero Superman recently said on Instagram: "One of my almost life long hobbies, that I've been following but not actively doing, is this. A company called Games Workshop... or plastic crack as 'we' call it," (Henry Cavill, 2020).

"Genuinely can't get enough of the lore they have built over the decades. They have been some of my most enthused reads! If you were in denial about me being a geek before, you can't hide from it now" (Henry Cavill, 2020).

Source: (Henry Cavill, 2020)

With over 11.5m followers on Instagram, this glowing endorsement of the hobby is being felt across the internet. Perhaps more broadly, it speaks to how the hobby is entering mainstream media in a very tangible way.

However, while the online store remains online and is continuing to take orders (including upcoming releases), the warehouses that fulfil these orders remain closed and non-operational since late March.


This article is a little different from those I usually publish here at SA. It is focused as much on personal insights I have had with the brand over the last 15 or so years as it is financial analysis, and provides in some ways a unique perspective into this high growth, high margin company. The business remains in great shape and is well prepared to weather the storm that is COVID-19 and emerge the other side as successful as ever.

The IP remains underappreciated by the wider investment community, and subsidiaries Forge World and Black Library (to name just two) continue to steamroll ahead, providing support for both the brand and the main retail business.

Growth is set to continue, with a long runway ahead that in the author's opinion can be measured in decades, not years. The group has barely penetrated many interesting markets, and growth in the US has a long way to go before meaningful saturation occurs.

Personally, my own stake has increased by around 30% as I continue to believe in the growth story ahead and the margins remain spectacular under a highly competent and experienced management team. Finally, it is worth noting the next set of results are due later this week on the 29th of April. There may be some volatility around this time, but the group is likely to post a good set of results as the impact of COVID-19 will not materially be felt until Q2.

This article was written by

Karl Ahlstedt profile picture
Karl holds a degree in business management and studied post graduate investment management at a top UK university. He has since worked at some of the largest Welsh investment companies as an Investment Analyst and delivered guest lectures in Finance at the University of Wales. I can be reached on LinkedIn or directly at

Disclosure: I am/we are long GMWKF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.