Games Workshop: Is there still room for the Warhammer universe to expand?

[Verneri_Pulkkinen]

I used to build Warhammers back in middle school, but only now did I think to take a closer look at the company, as it was requested for a segment in an upcoming gaming podcast. Games Workshop owns and develops the Warhammer IP (intellectual property) and manufactures plastic miniatures from this universe. The most famous is Warhammer 40,000, but there are several different Warhammer universes and stories. This lore has been developed for over three decades.

I opened the annual report for the fiscal year 23/24, which ended in June, and my jaw nearly dropped: the company is shamelessly profitable, focused on the essentials, and the annual report is seasoned with dry British humor. All the elements of perfection are strongly present.

The outgoing Chairman of the Board summarizes it like this:

“Maintaining a straightforward approach to our finances helps - we have no debt, we don’t hedge against currency movements and we distribute truly surplus cash to our shareholders as a dividend.”

And he is retiring because “As we continue to build our board for the future, it is also time to look to my succession… This timetable allows for an orderly handover and
reflects my personal decision that it is time to retire and spend more time fixing dry stone walls in Cumbria.”

(Why is Finnish investor communication always so stiff, bureaucratic, and dry?)

Operations are mainly located in Nottingham, which houses the headquarters, factories, R&D, and warehouse.

The company’s strategy and goals are clear, as the CEO puts it in the annual report:

“Games Workshop is committed to the continuous development of our intellectual property (‘IP’) and making the Warhammer hobby and our business ever better.
Our ambitions remain clear: to make the best fantasy miniatures in the world, to engage and inspire our customers, and to sell our products globally at a profit. We intend to do this forever. Our decisions are focused on long-term success, not short-term gains.”

The company develops its own story universe and tries to make the Warhammer hobby (assembling miniatures, painting, reading lore, and playing with the figures) and the business even better.

The company focuses on creating the best lore and figures and generating cash flow as efficiently as possible, which can then be reinvested in the business, with the “extra goodies” distributed to owners—which the company does quite generously. The company designs and manufactures the figures itself, but apart from plastic molds, warehousing, and factories, investment needs are modest and reasonable even in those areas.

The company clearly has pricing power. I don’t remember exactly what the figures cost 20 years ago, but by chance, I visited the Warhammer store in Kamppi this spring with vague motives and practically ran out in a panic after seeing the prices. A single commander, maybe a three-centimeter-tall plastic guy, cost about 40 euros if I remember correctly!

The company’s cost is the raw material plastic and, of course, the time spent on lore and the mold to make that figure, plus logistics and store costs. But even without deeper knowledge of the industry’s economic logic, it’s clear that the margins on that figure are in good shape! The buyer gets a character that is apparently great to build, paint, put in a display case, and occasionally take to the battlefield with friends.

The company operates over 500 stores globally itself, but independent retailers (in Finland, Puolenkuun pelit comes to mind, for example) and, of course, the online store are also important distribution channels.

The return on invested capital (ROIC) speaks to the company’s pricing power and the appeal of the lore. Although this is essentially an asset-light intangible business, since the firm makes those figures in its own factories, the return on invested capital is a very relevant metric. In the company’s filings, the return on capital has risen from the 40% level in 2015 to levels of 118–185% over the last four years, being 176% in the 2024 fiscal year. In other words, if GW invests one pound into the business, the profit grows by almost two pounds. This is calculated for the “core business,” which doesn’t directly include licensing income that drops straight to the bottom line, such as from video games, movies, or series.

Well, in practice, in a competitive world, growth has its limits, and the entire profit cannot be reinvested into the business that profitably.

The company has indeed expanded considerably. It started as a project by a group of fanatical gamers in the 80s, but in the 90s, the company was bought by a professional management team with Tom Kirby as CEO, who steered the ship until 2014. The company was listed on the London Stock Exchange in 1994. According to Warhammer wiki pages, Kirby’s era was somewhat contradictory and challenging, although on the other hand, the company developed tremendously. Under his successors, I understand they’ve really put some muscle into the universe, and judging by the profitability, pricing has been cranked up accordingly. The stock has indeed increased 15-fold over the past ten years.

I don’t know Warhammers inside out, and there are endless hours of YouTube videos about the lore. However, I believe the company’s IP is very valuable (the company’s market cap is over 3 billion pounds, after all), and no equally deep-rooted competitor comes to mind immediately. There are surely certain network effects at play here too: if Warhammer is the most common game, why build other figures? Or, one would need to reach a critical mass to build a competing community. Of course, thinking more broadly, as one should, Warhammer competes with board games, going to the pub with friends, video games, family, Netflix, and all other leisure activities.

Based on this brief dive, it combines features of a truly delicious business: asset-light, very deep moats, decades of lore, and network effects. There are surely millions of hobbyists, but I understand that in China, for example, the scene is still relatively small. Globally, there should be plenty of room to grow, and in addition, pricing power ensures that the company can grow at least with nominal economic growth, if not even faster through price increases in already developed markets.

The company’s revenue is currently around £500 million and operating profit is around £200 million.

The P/E ratio on trailing earnings is over 22x and the dividend yield is 3.6%.

Are there any owners or interested parties here? Or even hobbyists? Is the company’s universe still as alluring? I look forward to your comments.

Addition: here is the development of the company’s revenue (orange bars, right scale) and operating margin (left scale, %) over its entire listing history. The expansion over the last 10 years has been quite something and explains why earnings have multiplied as sales quintupled and the operating margin improved from the tens to around 40%.

The key question is likely how growth can be sustained in the future and whether profitability will stay at that level.

Addition 2: The message signed by @Uppo-Nalle contains a great historical overview; I’ll quote the beginning here so it’s easy to jump in. Highly recommended reading!

@Uppo-Nalle

So this is indeed a company that started in the garage of some English friends, which originally designed all sorts of board and card games, and was the official importer of Dungeons & Dragons to England. Around the same time, the guys developed a rule system that allowed enthusiastic young men to go to war against each other with their little figures, and that was named Warhammer. Games Workshop simultaneously became an investor in a company called Citadel Miniatures, which also made figures for their games. However, Warhammer figures grew to be by far the largest product group, and the entire miniature business was merged into Games Workshop, which still uses Citadel Miniatures as the brand for its figures and paints.

[Con4n]

I looked into this a while ago and ended up waiting for more moderate valuation multiples.

But mostly the same observations:

• Extremely profitable
• Strong IP
• “Simple” business that even a fool can understand.

There is also an interesting aspect here, in my opinion, that Henry Cavill is, as I understand it, currently working on a Warhammer 40k series. (And he is a big Warhammer fan anyway.)

I wouldn’t consider it an impossible scenario that if the series becomes a hit, the US market could grow significantly and potential licensing income etc. could materialize. I don’t know if the company itself has commented much on this yet.

Ultimately, I didn’t get much of an expected return in Excel with a basic cash flow model, or it requires some pretty heavy growth assumptions. Of course, the series is an option that, if realized, could really drive significant growth.

Maybe I should look into the company again.

EDIT:

Apparently, there is still some back-and-forth between Games Workshop and Amazon regarding the series; hopefully they reach an agreement:

Games Workshop and Amazon Have Until Dec 2024 to Agree 'Creative Guidelines'...

[Con4n]

Some kind of peer for Games Workshop could be Wizards of the Coast, which owns the Dungeons & Dragons & Magic: The Gathering IPs and is part of Hasbro. So it could probably at least grow to this kind of scale?

A bit OT but WotC is clearly the most valuable part of Hasbro; there was also an activist campaign a couple of years ago by Alta Fox Capital, which tried to spin off Wizards of the Coast from Hasbro - the argument was that it would be much more valuable as its own company. As it likely would be. Pity that didn’t happen. Hasbro stock was in my own portfolio for a while in hopes of this spin-off.

[Historian_Hopo]

Here are a couple of my own thoughts, quickly scratched off the top of my head. A strong “fan-gut-feeling” warning, but maybe this will offer something to someone. I won’t comment on the company’s valuation, as there are much smarter people than me on this forum for that.

Background: Like Verneri, I was a GW miniature hobbyist during middle/high school. After that, the hobby shifted from miniatures to consuming Warhammer 40K lore (books and the internet) and other Warhammer gaming (mainly tabletop RPGs and computer games). I don’t own any GW shares, but every now and then I’ve thought about taking a starter position.

The company’s core business on the miniature gaming front is very solid and will likely remain so, provided they can maintain their pricing levels. Prices have always been ridiculously high and a subject of inside jokes, yet decade after decade, people continue to pay the asking price. So, perhaps we just have to trust that this trend will continue.

In my view, the real “meat on the bone” lies in the powerful IP and the strong fanbase. The sky’s the limit if these can be leveraged and diversified in the style of Marvel. Overall, I find the company’s recent progress regarding its IP assets very encouraging. In years past, it seemed to be the case that GW sold the rights to its worlds to just about anyone, as long as they got paid. The company saw itself as merely a manufacturer of miniatures and paints, and all business or assets outside of that were treated as secondary, receiving insufficient focus. Consequently, the quality of computer games, for instance, was often subpar. Today, GW monitors its IP licensing much more strictly, and unauthorized fan projects are dealt with firmly. While this doesn’t please the fans, it certainly pleases the shareholders. There is, of course, a risk that some fans and quality material might be thrown out with the bathwater, but on the other hand, talented fan creators like Richard Boylan and Syama Pedersen have also been successfully recruited to work for GW.

I see some risks in the fact that GW’s IPs are, in my opinion, out of step with current trends in popular entertainment. These worlds are extremely warlike and violent, and also very asexual. Specifically, Warhammer 40,000’s religiously fanatical and bellicose, fascist vision of the future doesn’t easily mesh with equality, “woke” culture, sexual diversity, etc. If the lore is modified to fit “modern values,” will it alienate fans—some of whom are quite conservative and uncompromising when it comes to lore (e.g., Henry Cavill)? There’s also the risk that by tinkering with the lore, any potential films or series will become the same kind of soulless, lukewarm fluff as, say, the Rings of Power series.

[Anatoli]

A good dividend stock with the ability to grow its payout. At a +4% dividend yield, it will end up in my portfolio, which requires a slight decrease in valuation multiples.

[Uppo-Nalle]

Minun on pitäynt kirjoittaa yhtiöstä useammankin kerran tänne sijoitusfoorumille, sekä Globaalit laatuyhtiöt ketjuun, että ajatuksenani oli myös osallistua tuohon sijoitustusidean pitchaamiseen GW:llä.
Yhtiöllä valitettavasti ei ole minkäälaisia sijoittaja markkinointimateriaaleja joita olisi voinut käyttää kuvitus kuvina (ja viestin täyttäminen fantasia figuureilla ei oikein tuntunut oikealta) ja loppui oma aika/kiinnostus kesken kun hieman aikaa kasasin pitch-deckiä. Noh Verneri ehti siis ensin heiluttamaan sotavasaraa.

Kyseessä on siis todellakin englantilaisten kaverusten autotallista lähtenyt yritys, joka alunperin suunnitteli kaikenlaisia lauta- ja korttipelejä, sekä oli Dungeons & Dragons:n virallinen maahantuoja Englantiin. Samoihin aikoihin pojat sitten kehittivät sääntöjärjestelmän, jolla innokkaat nuoret miehet voisivat käydä sotaa toisiaan vastaan pikku-ukoillaan ja tuo sai nimekseen Warhammer. Games Workshop lähti samalla sijoittajaksi Citadel Miniatures nimiseen yhtiöön, joka teki figuureja myös heidän peleihinsä. Warhammer figuurit kasvoivat kuitenkin ylivoimaisesti suurimmaksi tuoteryhmäksi ja koko figuuri liiketoiminta fuusioitiin osaksi Games Workshoppia, joka edelleen käyttää Citadel Miniatures:a figuuriensa ja maaliensa tuotemerkkinä.

Vuonna 1987 sai keskiaikavaikutteinen Warhammer rinnalleen toisen tuoteperheen pelejä, joissa tutut haltiat ja örkit ja örkit siirretään kaukaiseen tulevaisuuteen avaruudessa taistelemaan kaukaisten planeettojen herruudesta. Koska yhtiön juuret olivat postimyynnissä oli sillä jo alusta saakka ollut oma tilaajalehti, jossa se oli esitellyt uusia tuotteitaan, mainostanut ja järjestänyt roolipelitapahtumia, mutta samalla lehdessä oli myös julkaistu erilaisia lyhyitä kaunokirjallisia tekstejä, jotka olivat jotenkin fantasiapeleihin liittyneet. Warhammer 40k:n julkaisun yhteydessä Games Workshop kuitenkin siirtyi ottamaan oman kirjallisen tuotantonsa vakavammin, ja myös alunperin kevytmielisenä parodiana markkinoidut Warhammer figuurit rupesivat samaan ympärilleen vakavammin otettavan fantasiamaailman. Vuosikymmenten aikoina Games Workshop on sekä omien sääntökirjojensa ja lehtiensä ohessa julkaissutta näitä tarinoita tuhansia ja tuhansia sivuja, sekä kustantanut satoja heidän fantasia universumeihinsa sijoittuvia kirjoja. Työ kantoi hedelmää ja Warhammer etabloitui niin vahvasti miniatyyrisotapeli markkinaan, että sillä ei ole edes vakavasti otettavia kilpailijoita, ja ne harvat jotka onnistuneesti samalla markkinalle ovat päässeet, usein tekevät rahansa valmistamalla “warhammer yhteensopivia” figuureja - ja ovat usein Games Workshopin vanhojen työntekijöiden perustamia.

Noin kymmenen vuotta sitten yhtiö kuitenkin ajautui kriisiin. Heidän kriisinsä oli paljon lievempi kuin liiketoiminnan kriisit yleensä ovat - yhtiö oli edelleen voitollinen ja varsin kannattava, se vain lakkasi kasvamasta. Minulle on edelleen epäselvää, että mistä ahneuden siemen alunperin pesiytyi tähän nörttien lyijymaalin tuoksuiseen maailmaan, mutta yhtiön johto tajusi, että heillä on käsissää kenties maailman kaikkein huonoiten (taloudellisesti) hyödynnetty IP. Talossa laitettiin tuulemaan oikein kunnolla, päätettiin keskittyä parhaiten myyviin tuotekategoriohin ja karsia rönsyt ja työntekijöiden puuhasteluprojektit, sekä nostaa hintoja. Tämän lisäksi myös videopelilisenssejä päätettiin ruveta myöntämään varsin heppoisin perustein (Warhammer on lisenssöinyt videopelejä kolme vuosikymmentä, mutta alunperin vain harvoin). Samalla yhtiö palkkasi ison nipun ikäviä lakimiehiä esittämään vaatimuksia kaikille niille tuhansille ja tuhansille tahoille, jotka olivat yhteisen harrastuksen nimissä tehneet jotain Warhammer universumiin liittyvää (kehittäneet omia pelejä, kirjoittaneet omia tarinoitaan tai jopa tehneet animaatiolyhytelokuvia) - kampanja herättä loputtomasti pahaa verta, mutta taloudellisesti uusi fokus oli menestys - yhtiöstä tuli satumaisen kannattava. Sitten tuli maailmanlaajuinen pandemia, ja maksukykyiset ihmiset ympärimaailmaa istuivat kaikki päivät kotonaan. Ja kaivoivat lapsuutensa Warhammer figuurit pölyisistä laatikoistaan…

(N.B. seuraavat luvut ovat edellisen viiden vuoden keskiarvoja)
Yhtiön viimeisen viiden vuoden kasvu on ollut päätä huimaavaa ja se on tehty useina vuosina lähes 40% nettomarginaaleilla. Yhtiö jakaa myyntikanavansa kolmeen osaan joista suurin on n. 7500 ulkopuolisen jälleenmyyjän verkosto (kulkee nimellä Trade). Trade-liikevaihto on enemmän kuin kaksinkertaistunut viimeisen viiden vuoden aikana. Samassa ajassa myös jälleenmyyjä verkosto on kasvanut noin kolmanneksen. Yksittäisen edustajan keskimääräinen myynti on myös noussut jaksolla n. 9,9% CAGR, 25 tuhannesta punnasta yli 40 tuhanteen puntaan.

Retail kanavassa yhtiö (hieman kummallisesti) siis myy itse omia tuotteitaan omissa kaupoissaan (ei ihan istu minun käsitykseeni jälleenmyynnin määritelmästä, mutta sanojahan nämä vain ovat). Yhtiöllä on n. 550 omaa kaupaa - joissa myydään vain konsernin tuotteita, joista melkein 500 on yhden miehen liikkeitä. Games Workshop siis palkkaa yhden työntekijän hoitamaan kauppaa varsin itsenäisenä kauppiaana. Loput ovat suurempia esittely liikkeitä. Tarkastelujaksolla näiden liikkeiden määrä on pysynyt varsin vakaana, mutta keskimääräinen myynti noussut 150 tuhannesta punnasta yli 210 tuhanteen puntaan (7,2% CAGR).

Viimeinen “Core-business”:ksen myyntikana on Online, joka kattaa yhtiön verkkokaupan lisäksi kaikki digitaaliset julkaisut, sekä Warhammer World:n yhtiön valtavan lippulaivamyymälän, joka sisältää myös suuren tapahtumakeskuksen ja Warhammer teemaisen ravintolan ja pubin. Verkkokaupan myynti on paljon muita kanavia syklisempää ja nousee hetkellisesti uusien tuotejulkaisujen yhteydessä.

(Pahoittelen kuvan suuntaa)

Sitten jotain ajatuksia tulevaisuudesta:

Ydinliiketoiminnassaan yhtiö panostaa tällä hetkellä kahteen markkinaan Australiaan ja Japaniin. Warhammer on ollut historiallisesti suosittua Australiassa, mutta yhtiön omille liikkeillä on ollut siellä paljon hankaluuksia, sekä henkilöstön että logistiikan suhteen. Sydney:iin on kuitenkin rakennettu uusi logistiikka keskus ja jakelusopimuksia on solmittu uusien tahojen kanssa (myynti on 5 vuodessa kolminkertaistunut ja yhtiö odottaa kasvun jatkuvan kovana).
Japani taas on maailman suurin figuurimarkkina, jossa Games Workshopilla ei toistaiseksi ole ollut mitään myyntiä. Voi toki, olla etttä alkuunpääseminen on vaikeaa, mutta potentiaalia kasvaa ainakin on.

Videopelien lisenssointi ja oman digitaalisen lehden myyminen (n. 50 € kuukausi, levikki n. 180.000 tilaajaa) ovat kuitenkin yhtiön kaikkein vahviten kasvavat liiketoiminnot. Suuri osa viime vuosien lisenssituloista ovat yhdestä erittäin hyvin myyneestä pelijulkaisusta (Total War: Warhammer - julkaistu 2016 ja kehitystyö jatkuu yhä). Kehittäjänä toimii englantilainen Creative Assembly ja heillä on lisenssi tehdä myös muita Warhammer pelejä. Huomion arvoisesti myös aikanaan erittäin hyvin myynyt Warhammer: Space Marine on saamassa tänä vuonna jatko-osan. Lisenssejä on myös myönnetty suurelle määrällä kehityksessä olevia pelejä, joista ei vielä ole mitään julkisia tietoja, mutta on turvallista olettaa, että Warhammer videopelejä nähdään myös tulevaisuudessa.

Kuten @Con4n ehtikin jo mainostaa, myös Warhammer on myös lisenssoitu pelien lisäksi Amazonille televisiosarjojen ja elokuvien tuottamiseksi. Oikein toteutettuna nämä voivat olla oikea kultakaivos, ja voivat figuurien myynnin lisäksi tuoda myös sellaisia asiakkaita, joita itse lautapeli ei voi koskaan tavoittaa. Ja aivan kuten @Verneri_Pulkkinen avauksessa mainitsi niin audiovisuaaliselle Warhammer sisällölle tuntuu olevan valtava nälkä, fanien itse tuottamat puuduttavan pitkät Youtube videot fantasiamaailman kiemuroilla spekuloinnista keräävät kymmeniä miljoonia näyttöjä. Kaiken tämän potentiaalin hyödyntäminen ei ole mitenkään yksinkertainen tehtävä, mutta oikeissa käsissä voisi Warhammerilla tehdä rahaa valkokankaalla tie kuinka paljon.

Pari sanaa osakkeesta:
En näe kovin montaa syytä miksi Games Workshop:n kannattavuus merkittävästi lähitulevaisuudessa laskisi. Volyymit näyttävät pysyneen korkeina koronan kasvuhypyn jälkeenkin, ja jos yhtiö jatkaa nykyisellä linjallaan, niin marginaalitkin pitävät. Kannattaa myös huomioida, että tuo kovin kasvu tehtiin kovien energian, materiaalin ja logistiikan hintojen ympäristössä ja yhtiö samanaikaisesti teki poikkeuksellisen paljon aineellisia investointeja. Kaikkien nämä rasittivat marginaaleja jotka ovat sittemmin nousseet. Mikäli markkina vaan vetää eikä yhtiö joudu alentamaan hintojaan niin en näe syytä mikseivät marginaalit lähitulevaisuudessa pysyisi nykyisellä tasolla. Toki pidemmällä aikavälillä epäilen minkään liiketoiminnan kykyä yli 50% prosentin tuottoja pääomalle vuodesta toiseen.
Myös jotkut niistä kuuluisuisista MegaTrendeistä ovat pikemminkin Warhammerin puolella kuin sitä vastaan. Näistä lähtökohdista tehty DCF laskelma (+6% kasvua 10v ja sitten 4% p.a. in perpetuum ) ja nykyiset marginaalit palauttavat n. 100 puntaa per osake (Diskontto 10% = 4% riskitön + 6 % (Britannian suht. korkea ERP) ja ykkösen beetta). Jos terminaalin EBIT:n laitta 5% yksikön laskun turvamarginaaliksi päästään n. 80 puntaan.
Ja sitten päälle optio siitä, että Warhammer elokuvat tai Videopelit lyövät läpi.
Jos taas lähestyy asiaa jonkin sortin osien summa laskelmalla ja erottelisi tuon miniatyyribisneksin Warhammerin IP:stä, niin vaikea minun on kuvitella, että edes pelkästään tekijänoikeuksia Warhammer 40k-universumiin myytäisiin alle parin miljardin ja jonkin arvoisia ovat GW:n muutkin pelit. Ei tämä nyt mikään Star Wars ole, mutta jos Rovion Angry Birds tekee rahaa elokuvilla niin kyllä sitten Warhammerkin.

Ja onhan tässä vielä niitä kuuluisia osinkojakin. Yhtiö tuuppaa koko kassansa useamman kerran sijoittajien syliin vuodessa. Vaikka osake olisikin täyteen hinnoiteltu niin tässä maksetaan odottamisestakin. Tietysti osinkolinkojen ostaminen tällaisilla kertoimilla saa hiukset harmaantumaan ennen kuin saa omansa takaisin.

[BooYaa]

GW kind of killed the Fantasy side tabletop game around 2015 when it was announced that 8th edition would be the final ruleset for it, replaced by Age of Sigmar, which was a completely different game.
At that time, a large portion of players moved to fan-made rulesets (e.g., The 9th Age project being the largest of these).
Of course, you could still play those with miniatures manufactured by GW, and many certainly preferred them due to GW’s quality, even though the price is high.
This year, however, GW brought back the Fantasy side when they released The Old World, and apparently, for example in the US, all major tournament organizers immediately switched back to GW’s rules, even though they had been using 9th Age rules in the interim.
In Finland and many European countries, as I understand it, both rulesets are being played, and time will tell if both will survive or if one will die out.

In any case, GW is certainly selling its own miniatures at a good pace. They are still superior in quality compared to the figures from smaller manufacturers.
However, if Old World gains momentum, there is a fair amount of growth potential as they re-release different armies for it, etc.
At the moment, it looks like only 4 armies have been introduced, whereas 8th edition had 16 different armies.

[kabu]

@Uppo-Nalle

(Total War: Warhammer - released in 2016 and development still continues)

A small correction to this part of an otherwise excellent post: there are currently 3 main titles in these highly popular (and absolutely brilliant [editor’s note]) Total War: Warhammer games, plus dozens of DLCs in modern fashion. Due to their popularity, there has already been speculation whether Creative Assembly could adapt Total War to the Warhammer 40k universe next, so I wouldn’t be surprised if licensing revenues from the PC side remain juicy in the future as well.

[Uppo-Nalle]

I am well aware that Total War: Warhammer has already received two full updates, which have been imaginatively named Warhammer II and Warhammer III, and a total of 23 paid expansions for these three, as well as a large bundle of free ones. However, they form a single entity; they have the same developer, and all content from the first and second installments is compatible (and playable) in the latest Warhammer III, which was released in 2022. From Games Workshop’s perspective, all of these can well be considered a single game, and the same licensing agreement covers them all. Since my message was becoming long anyway and I wrote it in a hurry during work hours, I decided to sum it all up with the words: “development is still ongoing.”

[Vara-Paavi]

Nice to see that the company has finally got its own thread on the forum. I’ve thought about opening a thread several times, but the busy family years are weighing on me so damn much that I haven’t had the energy to write an opening post that meets my own quality standards. So, thanks to those who opened the thread with high-quality posts.

Personally, I am currently two tranches “deep” in this case and am aiming to add perhaps about three more similar-sized tranches in the near future. The first tranche was eventually acquired in 6/2022 @ £74.21 and the second just recently in 6/2024 @ £103.14. I consider the current valuation to be neutral, but even at this price, I’m ready to add at least once a year, while aiming to utilize potential dips along the way to speed up the buying program.

Originally, I got to know the company through a Seeking Alpha article sometime during the COVID spring. I hadn’t known before that the company behind the plastic figures familiar from my youth (which, based on the price, must be made of gold) and with such strong “lore” is publicly listed. Actually, the majority of my friends from my youth are customers of the company, but I probably have enough ADHD traits that assembling plastic figures and “pay-to-win” style gaming never really clicked with me. The numbers were dazzling, but at the same time, 3D printers were all the rage and I suspected a) the strong growth was just COVID hype and b) in the long run, the sales of plastic figures would suffer from 3D models found for free online that you can print with your own 3D printer. There were probably other reasons too, but looking into the investment case was left at that.

A couple of years passed, and once again the hobby of plastic figures came up with friends; maybe some new game or something had come out that my friends were buzzing about. I talked about 3D printing and how the “scene” views it, and I was surprised that “pirate figures” are very strongly opposed in those circles. You have no business in competitions with anything other than official figures (and apparently they have to be painted with the company’s paints too?). I guess there’s some phenomenon along the lines of “since I’ve paid through the nose, you have to as well.” I saw that maybe 3D printing isn’t such a big threat to GW’s games as I had imagined.

Around the same time, there started to be good indications that leveraging the IP produces good results, so I decided to buy into the company, since valuation levels were also at a very reasonable level. Later, I’ve regretted how small a position I took back then, though I think I bought with all the liquidity I had left that wasn’t already shot into the stock market

Have you noticed, by the way, that dividends coming from the UK seem to have 0% withholding tax deducted at that end? And at least Nordnet, in my opinion, also omits the “Finnish end” withholding tax

[Housumies]

This thread came at a good time. My only contact with Warhammer was back in the day when I played through the Space Marine game (it was a good game, by the way). Every now and then I wondered if a sequel would be released, and the long wait was rewarded a couple of years ago when the Space Marine 2 reveal trailer was released. Inspired by this, over the past couple of years, I’ve dived deeper into the world of Warhammer, mainly into the lore, first through YouTube videos, and now I’ve listened to about ten audiobooks via Audible. Those audiobooks are excellent content for long drives (etc.), by the way, and you won’t run out of content anytime soon; I think there are about 150 books in the Horus Heresy series Of course, not all of them are probably worth reading / listening to, but still.

I realized about a month ago that you can invest in this company too. Since then, I’ve gotten to know the company a bit better through financial statements, etc., but it’s great that a thread has been opened for it on the Inderes forum as well. I read through this thread, and once again, there was a lot of new, useful information for me. It’s nice to read high-quality discussion and learn new things at the same time, so thanks to everyone who participated in the discussion.

[Menenski]

Ah GW <3 That producer of plastic, almost addictive, stuff.

GW has been a familiar company since my youth, and its popularity certainly hasn’t waned over the years, even if my wallet can no longer tolerate the tabletop game itself. Despite everything, I still follow the rules and watch games on YouTube. These miniatures are the main thing, and they really are impressive!

I have my doubts about how many little plastic men the world can fit, but those doubts have been proven outrageously wrong many times before.

For a gaming company (or however you want to perceive it), GW is very well-managed, and nowadays they are very strict about how their owned IPs are used; besides Warhammer and Age of Sigmar, they also have The Lord of the Rings. This strictness has only emerged relatively recently in the grand scheme of things, as some old games were quite steaming piles and the old miniatures were interesting, to say the least.

Warhammer 40,000 in particular is already so vast in terms of world-building that the possibilities are almost limitless in the form of literature, games, and other media. This is an extremely interesting trump card when talking about an IP set in a fantasy or sci-fi world. Or would anyone be surprised by a horror game or something more humorous set in the WH40K world? The Imperium of Man is vast and the galaxy even larger, so almost anything fits into the world believably. For this reason, the opportunity to expand is nearly endless, and careful management of the IP is TRULY important. The rather drastic rise in prices shows that in the tabletop segment alone, GW has that legendary moat, so a tighter valuation is, in my opinion, quite justified.

A big minus for GW is their strict policy regarding fan-made material. In recent years, they have gone after a few large fan operations and forced them to shut down to protect the IP. For example, “If the Emperor Had a Text-to-Speech Device” on YouTube had to stop because the creator feared Games Workshop would come through the door kicking it off its hinges, and this caused too much stress for the creator. This kind of thing can alienate some end-users; hopefully, they loosen their grip a bit in this regard. They could benefit from that visibility too!

As a final lighter note, I almost fell off my chair when I went to check the stock price on Nordnet. GBX doesn’t seem to be pounds

@Vara-Paavi They don’t know at the tournaments what paints the minis were painted with
It is true that tournaments are largely played with official minis, and 3D printing has been and will surely continue to be some kind of threat. However, 3D printing is relatively laborious and, even in regular gaming groups, is usually only used to make the oldest minis look more tolerable. Printing may increase in the future, but GW still has a huge amount of earning potential left.

[vme93]

Thanks for the thread. Lots of good posts above. For me, Warhammer was important in my youth, after which it fell by the wayside as other activities took over. Every now and then, I feel like digging out my gear and assembling/painting minis. As an investment case, the company is interesting, although it seems quite highly valued. However, this view might look foolish in a few years if growth remains at the level of previous years.

In an increasingly digital world, I believe Warhammer’s position might even improve. I believe there will come a time when people return to appreciating traditional hobbies, such as building scale models, in the midst of an electronic, accelerating world.

Perhaps the biggest questions for me are:

1. How does the industry withstand economic cycles? Is an activity like Warhammer at the top of the chopping block when finances get tight? In the previously mentioned graphs, the company has pushed through storms surprisingly well, but can this be expected in the future as well?

2. What is the age distribution of the customer base? Are new young people entering the scene at an increasing rate, or does the company’s profit rest on the shoulders of hobbyists approaching middle age? Is there any data on whether today’s youth are interested in Warhammer figures?

3. Is the current growth rate sustainable?

What are investors’ views on the company’s biggest risks and opportunities? Does anyone have calculations for a bear/base/bull case for the stock?

[Anssi2]

@Vara-Paavi

By the way, have you noticed that 0% dividend tax seems to be withheld on dividends coming from the UK at that end? And at least Nordnet, in my opinion, also doesn’t collect the “Finnish end” withholding tax

Yeah, you pay the full amount only the following year along with other taxes.

[Vara-Paavi]

@Menenski

GBX probably isn’t the pound

British stocks are quoted in hundredths of a pound, so are they pence then?

[Housumies]

I finally finished Space Marine 2 today, and I have to say it was well worth the wait. The game followed in the footsteps of its predecessor in that the gameplay was a lot of fun, and in my opinion, it succeeded excellently thematically—even better than the first one—in its depiction of the 40k universe.

I also took a look at the Steam charts, and the player counts look quite good to me:

The Steam reviews also speak for themselves, being Very Positive. The success of this single game likely won’t move the needle much for Games Workshop’s overall trajectory in the big picture, but it provides positive visibility for 40k and has likely attracted even more new fans to the 40k-verse. Hopefully, it also opens the door for future sequels in this series and potentially other high-quality 40k games as well. To my taste, far too many of the available 40k games are mediocre turn-based strategy titles. Of course, those kinds of turn-based strategy games probably appeal well to the core fanbase—the tabletop players.

[Uppo-Nalle]

Games Workshop only releases interim reports semi-annually, and its fiscal year is somewhat unusual, running from June 1st to May 31st (the idea was likely to keep the exceptionally busy Christmas period as far as possible from the financial year-end). To supplement this, however, the company releases a stock exchange release every calendar quarter. The latest one was received last Wednesday; I’ll copy it here in its entirety:

Games Workshop Group PLC announces that trading for the three months to 1 September 2024 has been in line with the Board’s expectations.

Short and sweet—or however the saying goes. I assume this means 5-10% growth compared to the previous year’s period. The “core revenue” for the half-year ending last November was ~£236 million. Thus, the expectation for this year could be something like £250-260 MGBP + a positive impact of two to three percent from more favorable exchange rates compared to the previous period, provided no radical changes occur in the near future. I expect margins to have remained roughly the same as a year ago—slightly lower material costs and lower fuel/energy costs, but higher freight prices. Therefore, a profit of at least 90 MGPB is expected from its own operations.

Then we still need to estimate licensing income. When individual major releases are smoothed out from GW’s licensing income in recent years, we get slightly under 20 million. In the upcoming half-year, no significant new releases are expected besides Space Marine 2. I assume new sales of other games will be relatively slow until the end of November, so let’s take about 9 million pounds in license fees as a base for the half-year ending in November. Then we need to add the earnings from Space Marine. The game was released on Monday, Sept 9th, and by the same weekend, Saber celebrated 2 million in sales. The game has remained at the top of the sales charts for a couple of weeks after that; I assume sales have continued to be good but are still under 5 million copies, as Saber would presumably have celebrated that milestone as well. So, here follows a back-of-the-envelope calculation of the game’s sales figures.

If we assume the game has sold 4 million copies so far, at £60 each (the price per copy is £55/60€/$60, but I assume every tenth customer bought the more expensive version with extra content), it makes roughly £240 million gross.
Using Games Workshop’s regional sales distribution, an average of about 15% goes to VAT (-36 MBGP).
Since it’s a video game, I’ll also make a 5% provision for returns (-12 MGBP).
The game hasn’t been sold at a discount yet, but just to be safe, let’s make a provision that 10% of copies were sold in regions where it costs half the normal price (-12 MGBP).
I estimate the total sales revenue for the game is currently about 180 million pounds. From that, a 20% share goes to digital storefronts, so Saber Interactive’s sales revenue is approximately 140-150 million pounds.
When license fees for unit sales in a standard agreement are calculated from this revenue accruing to the publisher, and assuming GW’s share is 10%, Space Marine 2 has generated about 15 million pounds in licensing income in two weeks. That is, an estimate of more than all other licensing agreements this fiscal year combined.

I don’t know how that sales revenue is amortized into licensing income, but assuming the September sales transfer entirely to the fiscal period ending in November and that Space Marine 2 sales continue reasonably in the coming weeks, I find it very possible that GW will set a new record for half-year net profit—over 108 million pounds. All the prerequisites seem to be there because, based on a quick digital sweep and tallying up, videos bearing the game’s name have already accumulated about 300 million views on YouTube, so there is clearly plenty of interest.

If Core Revenue doesn’t sour significantly over the next six months, GW might well reach double-digit annual growth again and—incredibly—an improving margin… . Well, let’s return to this sometime later.

P.S. If my calculation containing wild assumptions about Space Marine’s sales revenue is anywhere near the right track, Embracer’s decision to sell Saber Interactive back to its founder for $250 million seems like a mistake comparable to the Uniper deals.

Edit. The game itself was quite good, a nostalgic return to the “rocket tag” playstyle of 15 years ago and an excellent sequel to one of the most popular audiovisual Warhammer products. In the final moments of the game’s testosterone-fueled story, the dosage of nostalgia was dialed up by placing the player themselves in the middle of an iconic depiction of space fantasy super-soldiers protecting their unit’s banner from an endless alien assault.

P.P.S. There’s quite a small size limit for files uploaded to the forum.

[Trivial]

@Uppo-Nalle

P.S. If my calculation of Space Marine’s sales revenue, which contains wild assumptions, is even close to being on the right track, then Embracer’s decision to sell Saber Interactive back to its founder for $250 million seems like a blunder comparable to the Uniper deals.

Over the years, Saber has also produced a large amount of complete garbage, and the company constantly has problems in its game development, with published games often having a negative ROI (Return on Investment). Additionally, the company is practically full of Russian and Belarusian developers, and the market didn’t particularly like this; for example, Space Marine II was developed in Russia, and there is Russian money behind the company anyway. Though some of the developers supposedly reside in Malta nowadays. No one has any information about the game’s budget, but the release has been delayed at least three times, so it might not be quite as profitable a project as imagined. The game’s publisher/funder Focus also takes a large share of the revenue. GW (Games Workshop) gets its licensing fees, and the game is good advertising for the rest of the brand.

The company’s valuation level is still quite high, and much depends on what ultimately happens with the Amazon deal during the rest of the year.

[Housumies]

Kurssien ja niiden muutosten kyselyt, kauhistelut ja hehkuttelut (Osa 3)

Just to let you know, the guidance raise seems to have come through. I wonder if the attention gained from Space Marine 2 has nicely boosted sales

[Housumies]

Games Workshop’s half-year review out: https://assets.ctfassets.net/ost7hseic9hc/1alE9DriNd0GJq1SYKn3ZY/e14d3ff03635ea919c569f075b25c60a/2024-25_half_year_report_final.pdf

As could be concluded from the previous guidance uplift, this was the company’s best half-year in its history:

A few observations from the report:

• Negotiations with Amazon concluded for the Warhammer TV series: https://investor.games-workshop.com/news-posts/agreementwithamazonforfilmsandtelevisionseries101224
• More information about the Amazon deal is apparently coming in the financial statements, i.e., in six months.
• Production capacity increased and new “factories” are being planned. The fourth factory has received a building permit and should be completed in 2026. This factory will be located near the headquarters in Nottingham. Two other properties have also been acquired near the headquarters, one of which is intended to increase painting production capacity, and the other property provides additional capacity for future expansion.
• Licensing revenue grew from 12 million to 30 million, mainly driven by Space Marine 2.
• Core revenue grew by 14.3%. Currency-adjusted core revenue grew by 16.4%.
• Total revenue, which also includes licensing revenue, grew by 20.9% and by 23.4% when currency-adjusted.
• Gross margin decreased from 69.4% to 67.5%. This was mainly due to an increase in inventory levels because some new products have not sold as planned. Design costs were also increasing due to new product launches.
• Improvements are coming to IT systems and the company’s own webshop.
• The board also declared a new dividend of £1.55 per share. Dividends declared during this year (2024/25) amount to £4.20 per share (for comparison, 2023/24 was £3.15 per share in January 2024).