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Games Workshop shares: not as good as they are painted?


Those of us who remember Games Workshop Group PLC (LON:GAW) as a small business run by two hobbyists from the back of a van have to blink twice when we see the company featured in the FTSE 250.

Founded in 1975 by Ian Livingstone CBE and Steve Jackson, its initial mission was to bring the wildly successful Dungeons & Dragons (D&D) fantasy role-playing (FRP) game to Britain’s shores but it really started to carve out its own niche when it developed Warhammer, a tabletop miniatures wargame based on a world not a million miles away from the world of D&D.

Over a period of several decades, it slowly grew, its stores operating as a kind of creche for pre-teens – the quid pro quo being Mum or Dad would drop off Irving or Daniella for a couple of hours for an afternoon session of dice rolling and tape measuring and then come back and succumb to pester power for that new model of a Dark Elf with the really cool jagged terbutje (usually passed on the left-hand side, as my gaming group invariably used to quip).

As well as selling (nothing but) its own products in its own stores, it also supplied independent games shops and if there were many complaints in the gaming hobby about a Games Workshop outlet always mysteriously appearing in the same town as a shop that was shifting a lot of Warhammer and Warhammer 40k stock, well, that’s business.

The business really seemed to fly, however, when the company took the controversial decision to turn many of its shops into one-man operations (which meant the end of the creche) and to focus more on selling directly (if you’ll forgive the use of an adverb) to consumers.

The decision not to license its intellectual property to Blizzard Entertainment, who went on to create the phenomenally successful World of Warcraft computer game, was probably a big mistake but generally, the Games Workshop war machine has enjoyed many successes.

Painting toy soldiers is a great lockdown activity

The global pandemic did not slow it down; if anything, it provided a boost, as evidenced by the shares hitting a new high at the end of 2020, rising from 6,105p at the end of 2019 to 11,200p. At the end of 2016, you could have got the shares at around GBP7, which barely covers the cost of an Ork (no, that’s not a typo).

Over that time (well, mid-2016 to mid-2020), the market capitalisation of the company has risen from 1.4 times annual turnover to more than 10 times that.

The price/earnings ratio has soared from 11.9 to 53.4 while the dividend yield has slumped from 9.0 to 0.6.

Remember, these ratios are from mid-2020; the shares have risen by a quarter since then.

OK, the ratios are not the sort of bonkers metrics you can find for Tesla but has the valuation, as today’s near 7% fall suggests, got a bit ahead of itself?

Probably but here are a few reasons why Games Workshop is not likely to become the next Hornby in the next 20 years.

It’s number one in a field of one

To be sure, playing with toy soldiers as a pastime has been around for a long time. HG Wells wrote about it in his book “Little Wars”; think of the classic “Black Adder Goes Forth” scene with General Haig shovelling eliminated toy soldiers by the dozen into a bucket.

So, it’s not the only miniatures wargame in town. It’s not even the only fantasy or science fiction-themed wargame system out there but it so dominates the “munchkin” market that it seems there is as much chance of Duckduckgo usurping Google as the West’s favourite search engine as there is of, say, Warzone Resurrection (kewl though it looks, dudes) knocking Warhammer off its pedestal.

The intellectual property

So far as I know, no one owns the intellectual rights to Napoleon’s Imperial Guard but try to make a film about Tyranids without Games Workshop’s permission and you are likely to get a swift call from the Nottingham company’s legal team.

Once upon a time, Marvel and DC Comics fans were looked down for their enthusiasm for a nerdy niche medium and now superhero films are just about the only things that make Hollywood money.

So, why not a Games Workshop movie?

The fan base is there and has built up over 40 years or so. As Games Workshop learnt when it brought out a Lord of the Rings game to coincide with the release of the blockbuster movie of the same known, a successful fan can drive sales, not just of the group’s miniatures games but also Warhammer Online, its massively multi-player RPG.

The brand has stood the test of time

Games Workshop started off piggy-backing on the success of Dungeons & Dragons so it knows all about gaming fads. It has seen ’em come and go; D&D; computer games consoles; collectible card games such as Magic: the Gathering and Pokemon; the innumerable stupidly overproduced Kickstarter boardgames (all based on HP Lovecraft’s dreadful literature) that seem to in fashion right now.

Through them all, the appeal of spiky goblins, paint under the fingernails, arguing with your friends over rules interpretations and suchlike has been sustained.

The fans are incredibly dedicated – they have to be when even train spotters and stamp collectors look down on them. I fully expect the game still to be going strong when the name Tesla is only remembered as the surname of a genius inventor and futurist.

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