Questor share tip: Buy Games Workshop as company leverages fantasy brands
26 July 2016 • 7:09pm
Questor says BUY
Investors looking for an attractive yield and a company well placed to benefit from the pound’s steep falls could do worse than Games Workshop, a business that Questor feels has been overlooked.
Cheap and cheerful
After a troubling end to 2015, revenues at the tabletop games maker have recovered, and the stock appears reasonably cheap, at a price-to-earnings multiple at just 11.2. Coupled with strong cash generation and healthy overseas sales, Games Workshop is an enticing, if risky play.
The company has pumped out figurines to a hardcore audience since its formation in the 1970s, providing the parts for customers to assemble and paint their own armies. Yet despite the high-tech alternatives now available, the firm’s fans have remained loyal.
Valued at just £150m, the company receives scant analyst coverage. Only house broker Peel Hunt currently holds a rating on the stock. Its “Buy” recommendation was reiterated after Games Workshop’s annual results on Tuesday, citing their expectation for a chunky 7.5pc dividend yield over the next two years.
Recent falls in the pound will make the Nottingham-based company more competitive, as it makes 72pc of its sales overseas and has a domestically focused cost base. A weaker pound could boost profits beyond the expectation-busting £16.9m achieved in the year to May 29.
Games Workshop said that it is particularly sensitive to the US dollar, against which sterling has dropped 10.9pc since the start of the year, and also the euro, compared with which the pound is 11.8pc cheaper over the same period.