Fantasy miniatures maker Games Workshop (GAW) reported 16.3% growth in constant currency revenues and 40% uplift in operating profits for the first half to 1 December 2019.

This is another impressive performance, one that continues to power the share price to record levels. To put this into context, the stock started 2019 trading at £30.40, while five years ago investors could have bought the shares for less than 500p.

Today the share price rallied roughly 5% to hit £66.90, an all-time high.


Games Workshop is a business that continues to demonstrate the benefits of significant operating leverage. That's where profits rise faster than sales because large chunks of running costs are relatively fixed.

In the six month period, total revenues increased £23.2m, or 18.5%, to £148.4m (£145.6m if you even out currency fluctuations). Of that, almost 80% fell straight to operating profit, which jumped 45%, from £40.8m a year ago to £59.2m (£57.1m as constant currencies).

This apparent operational gearing might appear odd to many investors. In theory, more shops and inventory will be required to grow the top line, but this underestimates two factors which help to drive revenues at low or negligible cost.

One is the Trade channel, which sells through third party retailers. This represents around half of the business and the division recorded impressive 27% growth in the half as approximately 200 new retailer accounts were added to the roster, including many with an online focus, which helps increase the company's routes to market and make it easier for customers to search and buy.


The second factor driving operational leverage is licencing income, where it sells rights to associated toy makers, merchandise or broadcast rights for its brands. The 2010 Warhammer 4000 movie is a good example.

But this is an unpredictable income stream, as the company itself admits, but it does represents virtually pure profit. Revenues here grew from £5.2m to £10.7m in the half.

Underlining the attractiveness of the business model, reported returns on capital increased from 96% to 111% in the period, while cash generated from operations surged 58% to £37.7m, allowing the business to increase the dividend by 54% to 100p per share.


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Issue Date: 14 Jan 2020