There has been much written on Games Workshop (“GAW”) as an investment. We have long admired GAW as a business and as investors, have always been particularly impressed with their approach to investor relations, the stock market and reporting which isn’t matched for straight talking by anyone other than the oft quoted Berkshire Hathaway. They run the business, don’t worry about the daily stock market popularity contest that is the share price, report sparingly but splendidly to shareholders (the annual report is a delight of detailed concision, devoid of superfluous gloss and artistry) and focus on the most important factors of employee and customer satisfaction such that value creation is a hard-earned output that is self-evident and not self-aggrandised.
GAW has a unique product, highly valuable IP and loyal customers, evidenced by an extraordinary financial profile of high gross margins, high operating margins, high cash conversion, high returns on investment and no leverage. The focus on protecting the core business has been the right thing to do and we applaud management for not straying from that path to ensure the best in class, highest quality product is carefully sustained and improved to remain ahead of the field, never disappoint customers and be the bedrock on which customer loyalty is built and retained. However, the potentially exponential value of the brands and IP that is accessible through the ecosystem they can build around their core franchise seems to become, to our minds, more glaring.
While the company is somewhat advanced with game licensing, social channels, its customer engagement platform, hobby introduction schemes, publishing and more recent script writing hires to advance TV and animation projects, we feel there are strategic buyers out there that could unlock even greater value. With the company’s model and success, and a capitalisation of c.£2.5 billion we don’t think the flood of capital available to private equity and activist hedge funds will hold back forever, but they shouldn’t really get a look in. Here’s our thought for the investment bankers among our membership: call us crazy, but wouldn’t GAW be a hugely attractive proposition in the hands of Disney?
As the entertainment streaming wars rage on (where Disney has just announced great success) GAW’s content and IP could become even more valuable as these platforms look to create long-running franchises. When you consider the success that Disney has had with film franchises such as the Marvel Cinematic Universe and Star Wars, and HBO with series such as Game of Thrones, I can only begin to imagine the value potential of GAW’s brands and characters in replicating something similarly successful over the longer term. Having recently witnessed my son’s Pokémon obsession graduate almost overnight into a Warhammer fascination, I have little doubt that such success would feed back into the core products and drive interest in future generations of hobbyists. In that arena, GAW’s retail store base could surely become a valuable extension to Disney’s theme parks and attractions.
On the gaming front, with the advent of immersive, in-game programmatic advertising, GAW can now not only protect their brands from detrimental adverts but also capture a share of the significant potential revenue streams games publishers, relying on GAW’s extensive and valuable IP, will be able to generate through advertising. With so many third-party production services now available, it might even be possible to retain the core game build and ownership in-house to create even more valuable game franchises than previous successes with the benefit of film franchise tie-ins.
So we think that GAW’s price reflects its current strong business, but that the value to the right buyer is not at all reflected and the company could become the target of a range of creative and visionary consolidators. We will keep watching with interest.
We do not hold any position in the company’s securities
