Games Workshop Group PLC (GAW.L)
A monopoly-like business in a strong niche with a rich IP, ~30% net margins, ~50% ROIC, and interesting growth prospects. It's selling for less than 70% of its value and EV/EBIT of 18.6x.
Key Facts
Description: Games Workshop (Ticker: GAW.L) was incorporated in 1991 and designs, manufactures, distributes, and sells fantasy miniatures and related wargaming tabletop products. It also licences the usage of Warhammer IP and employs 2,643 people.
Track record: Over the last decade the company compounded its revenue at a CAGR of 13% (27% over the last 5 years) and its net income at a CAGR of 26% (21% over the last 5 years.) It has done so with 0 debt and is in a strong financial position having produced £104.5 million in free cash flow during the last fiscal year.
Market cap: Its market cap as of the 14th of June 2023 is ~£3.32 billion. It has grown at a CAGR of ~20.6% over the last 5 years. It is also ~82% up from its 52-week low.
Valuation: GAW.L trades at a TTM P/E of 26.9x (10-year average of 19.3x) and an EV/EBIT of 18.6x (5-year average of 18.7x).
Glossary: GW - Games Workshop, IP - Intellectual Property, AoS - Age of Sigmar, Wh40k - Warhammer 40,000, TWW - Total War Warhammer, Whfb - Warhammer Fantasy Battle.
Business Overview
What is it?
Games Workshop (often abbreviated to GW in the Warhammer community) is a UK-based company that designs, manufactures, distributes and sells fantasy miniatures and related tabletop wargaming products. It is best known as the creator and owner of Warhammer, which comprises its two main tabletop wargaming systems (Warhammer Age of Sigmar and Warhammer 40,000) along with other smaller related systems like Horus Heresy and the overall fictional universes that appear in books, video games, and other media. The brand and the word “Warhammer" refer to its wargaming systems, imaginary worlds and IP, or simply to the Warhammer hobby as a whole.
The company is vertically integrated as it owns most of the value chain: design studios, manufacturing plants, and distribution centres, and ~50% of its sales are direct to customers. Combined with having no serious competitors and monopolistic IP as Warhammer is a market of its own and GW owns it, it creates strong economics (more on that in the Moat section later.) Most of the sales come from the core business, which sells Warhammer miniatures and related products (paints, brushes, tools, glues, terrains, rulebooks, etc.) It also generates royalties related to its IP, mostly from video games.
The Warhammer hobby can be thought of as the way customers interact with Warhammer and the company. People collect armies of factions from one of two fictional worlds: Age of Sigmar, abbreviated to AoS (fantasy), or Warhammer 40,000, abbreviated to Wh40k (space fantasy), each of which has its corresponding game system. The process involves buying units from the army of your choosing (most miniatures are plastic nowadays), assembling them using cutters and glue, painting them, and then playing against other peoples’ armies on a tabletop. The games are strategic, turn-based, and played using a tape measure and dice. Many people also enjoy reading books based in Warhammer worlds (Black Library) or playing licensed Warhammer video games.
How does it make money?
GW makes most of its revenue from selling Warhammer miniatures and related products to customers directly or through independent retailers. It also generates royalty revenue from its licensing partners. The sales can be divided into 3 core channels plus licensing.
Keep reading with a 7-day free trial
Subscribe to Bebop Value to keep reading this post and get 7 days of free access to the full post archives.