- Earnings guidance upgraded again
- 26% pre-tax profit surge
- Licensing gains won’t be matched next year
It’s been a fabulous year for Games Workshop (GAW), the fantasy games and miniatures maker that has delivered a string of good news around earnings and enjoyed promotion to the ranks of the FTSE 100.
But the shares slipped 4.2% lower to £152 in early dealings on 23 May after the Nottingham-based company warned it doesn’t see the record levels of licensing revenue generated in the current financial year repeating in the new one.
This guidance disappointed investors excited about the Warhammer franchise owner’s licensing potential, and took the shine off yet another earnings upgrade from a business bulls believe has only just scratched the surface of its global expansion opportunity.
PROFITS MARCHING HIGHER
For the year ending 1 June 2025, Games Workshop guided for core revenue to be ‘not less than £560 million’, implying at least 13% year-on-year growth, with licensing revenue forecast at circa £50 million, a healthy uptick from £31 million a year ago.
However, Games Workshop cautioned: ‘Licensing revenue in the period is at a record level and we are not expecting this to be repeated in 2025/26’, though the company stressed that ‘licensing remains a significant area of focus’.
While the licensing guidance fell flat, Games Workshop said profit before tax for the year about to end is estimated to be ‘not less than’ £255 million, comfortably ahead of market expectations for £240 million and implying a year-on-year rise of at least 26%.
ROCK-SOLID CORE
For the uninitiated, Games Workshop’s rock-solid core business is underpinned by an army of fans obsessed by its fantasy worlds who collect miniature figures and play its board games.
This success has enabled the company to build a rich library of intellectual property (IP) that provides the platform for additional revenue generation.
Much of the excitement surrounding Games Workshop centres on a deal struck with Amazon (AMZN:NASDAQ) to create a Warhammer 40,000 film and TV series, for which creative guidelines have been agreed.
This agreement gives Amazon exclusive rights with an option to license equivalent rights in the broader Warhammer universe after any initial productions have been released.
STRONG PIPELINE
Russ Mould, investment director at AJ Bell, explained that licencing the rights to certain brands and characters is ‘easy money’, but Games Workshop is ‘fiercely protective of its assets and won’t let anyone come along and milk them. It wants to be sure that any custodians of its IP are using it wisely and do not tarnish its reputation.’
Mould continued: ‘Games Workshop has enjoyed terrific success with licencing assets for the Warhammer 40,000: Space Marine 2 video game. There’s a warning that licencing gains seen over the past 12 months won’t be matched in the new financial year, which explains why the shares have pulled back on the trading update.
‘However, the pipeline looks strong enough to keep most investors on side. In addition to another Space Marine game being developed, it has all the licencing income from a deal with Amazon to look forward to.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
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