Great chart for a fabulous share

This chart, of the first share ever alerted by Quentinvest, at 1356p on 11 July 2017, looks as promising as ever. There is that first massive breakout, a rocket-like rise and now another consolidation within which there is a double whammy buy signal. On this chart you can see how the red frownie, marking a change of direction by the shorter (blue line) moving average, may herald a sharp decline but also sets up the shares for the next buy signal and, on a long term chart like this, where each candle stick represents half a year, those buy signals don’t come very often. Effectively, in this case, there is one for each red frownie. The strong possibility is that the consolidation since the middle of 2020 is setting up the shares for another sustained share advance and maybe even a share split as the share price in pounds moves solidly into three figures.

That first alert gives an insight into how I think. At 1356p the shares had already almost trebled in two years so it might have seemed too late to buy but I never look at where a share is coming from but always at where it might be going and explosive price action, I regard as bullish, especially if there is performance and a story to match. I like the fact that GAW shares are rising so strongly now, allied to signs that growth is accelerating.

I always want to own shares where buyers are overwhelming sellers and there is a palpable air of excitement around the business.

I cannot find any special ‘something new’ to drive the price but the company is in talks with Amazon over IP and, as we shall see below, one stockbroker, thinks that may be the next catalyst for a rising share price.

We have agreed, in principle, to explore opportunities to exploit our IP with Amazon Studios. We announced this in December 2022 after the half year period. We have nothing more to say at this stage. We will keep you informed. We remain confident we will bring the worlds of Warhammer to the screen like you have never seen before.

Games Workshop, Half Year results, 10 January 2023

This looks as though it could be a big deal.

“It’s great news and we’re absolutely thrilled; we’re working with a fantastic triumvirate in Henry, Vertigo, and Amazon. Henry’s well-known love of Warhammer 40,000—and his passion as a world-builder and storyteller—will serve us all well in the coming years. Finally, Warhammer will make it to the screen as the fans have hoped, and as they deserve. Exciting times!” said Andy Smillie, creative director of GAW. 

Vertigo Entertainment’s Roy Lee and Natalie Viscuso (Barbarian, The Lego franchise, the It films, The Departed) partnered with Henry Cavill early on to secure the coveted IP and deliver it to Amazon Studios. Vertigo will executive produce with Cavill and GAW’s Andy Smillie and Max Bottrill alongside Amazon Studios. 

Henry Cavill’s numerous projects on the horizon include Matthew Vaughn’s globe-trotting spy thriller Argylle, the highly anticipated reboot of Highlander, Guy Ritchie’s The Ministry of Ungentlemanly Warfare, and Season Three of The Witcher. He is represented by WME. 

Games Workshop. 16 December 2022

Games Workshop is such a class act as a business.

Games Workshop’s fiscal 2023 results show a company well poised for growth as capacity constraints ease, and showing continued underlying momentum across all areas of the business, Goodbody says. The British miniature-wargaming company is delivering growth across all of its territories and the launch of the new edition of the popular Warhammer 40,000 setting provides an added buffer to fiscal 2024 forecasts. “The additional upside not factored into licensing revenue forecasts on Amazon is likely to be the next material stock catalyst in our view,” the Irish brokerage says. Goodbody retains its buy recommendation on the stock.

Dow Jones Newswires, 25 July 2023

Another rewarding and successful period for the global team with core sales for the six months of over £200m for the first time. We will continue to focus on making the best miniatures in the world, sign new licensing contracts with partners to exploit our IP outside of our core business and support our staff.

Games Workshop, Half Year results, 10 January 2023

One of the most staggering features of Games Workshop is its high return on capital (see below). If it can invest more while maintaining that return it can grow strongly and the business seems well short of the world conquest it is aiming for.

Most of the around 7,000 outlets around the world (518 company stores and 6,500 trade partners) are low cost, either because they are in secondary rental positions and staffed by just one person or because, as trade outlets, they are part of a business doing other things. It is easy to imagine that the number of outlets could increase dramatically over time. There are hardly any in Asia where I think Warhammer and the whole business of creating table top miniatures could become fantastically popular and even in North America and Continental Europe the number of company shops is not far ahead of those in the UK despite the huge disparity in population.

More outlets drives more online sales and also sets the scene for yet more success by the highly profitable but as yet relatively small licensing business. And if the latter grew substantially say with a successful Amazon project this would drive higher sales of miniatures in a powerful virtuous circle.

It is easy to see how Games Workshop could be a business well short of its ultimate potential, or as they would put it, a hobby, with enormous appeal well suited to attract millions more hobbyists. They just have to find them and they are becoming better and doing this all the time.

The company is currently investing heavily in logistics, technology and reorganising its management structure with a view to being ever more successful and it is unique with many characteristics of a monopoly as evidenced by that stunning return on capital.

Strategy – Building Global Scale for a Unique Business

Games Workshop has some elements of a luxury goods company.

The prize as most expensive Warhammer model goes to Forge World gigantic creatures and titans. A Warlord Titan in 2020 costs 1,550 EUR / 1,250 GBP / 1,930 USD. You might wonder who can afford to buy those but there are many rich people around. The figures seem to vary depending where you look but nearly 10pc of Americans are millionaires rising to 16.4pc in Switzerland. In total we are fast heading for 100m millionaires worldwide, which is a lot of spending power.

Why would anyone want to spend so much? Well, they stand nearly two feet high, can be customised with paint to look amazing and pack huge punch in the table top games. If one of these guys turns up it is time for rival armies to tremble. Games Workshop is fun and has many adult enthusiasts.

It is true that Games Workshop tends to destroy products that are discontinued, just like most luxury companies. They can’t afford to sell them for cheap, as that would decrease the value of sets that have already sold, [which command staggering prices on Ebay, see below]. Also, this would just make people wait for the discontinuation sale, instead of buying them when they are released. They can’t just give it away for free, as there are laws about how to do that, and how much tax they have to pay when doing so. So, to protect those who have already bought the products, and to protect the future interest of the company, destroying them can be the best way.

Games Workshop, 29 October 2020

If you look on Ebay for fully painted Warhammer sets prices run into £1,000s of pounds. It is like Ferraris. They are expensive but the pleasure they give justifies the cost. It also helps explain the incredible return on capital figures achieved by GAW and the potential as this business puts in place the building blocks, better technology, updated web sites, additional production capacity, to go fully global.

The chart is interesting. After an incredible run the shares have gone nowhere since November 2020 but that is building a springboard for a powerful renewed advance and meanwhile we have that double whammy buy signal.

I think the shares are a buy now with confidence that future progress will justify a higher share price. The only thing missing is a really tangible ‘something new’ but my guess is that one will come along, maybe the Amazon link-up, maybe a breakthrough in Asia or an acceleration in North America or continental Europe.

Share Recommendations

Games Workshop GAW. Buy @ 11660p