One of the best performing UK stocks of this year could have even further room for growth, according to Premier Miton’s Jon Hudson, as miniature wargames manufacturer Games Workshop continues to grow.
The company has been one of the best performing UK equities this year, having seen its share price rise by 55.12 per cent raising questions about how much more room there is for growth.
But Hudson, who manages the £126.5m Premier UK Growth fund, said its breadth of intellectual property allows for multiple avenues in which to take the brand.
Performance of Games Workshop YTD
Source: FE Analytics
Games Workshop is a relatively new addition to Hudson’s fund, having invested last year, but the company is an old one having been founded in 1975.
Having originally been a store-based business for many years, it has embraced the digital shift in recent years growing into a business now valued at £3bn.
In its most recent set of annual results, the company reported a 5 per cent rise year-on-year rise in revenues to £269.7m for the year to end-May, while pre-tax profits rose 10 per cent to £89.4m, with chief executive Kevin Rowntree describing it as “the best year in Games Workshop’s history, so far”.
Rowntree, has been with the company since 1998 and was named chief executive at the start of 2015. Hudson said that Rowntree has “embraced digitalisation” allowing it to expand from more localised locations into the wider US and Asian markets.
“It’s a global business now and they’re only just scratching the surface of China, and if it takes off there the opportunity for future growth is huge,” said Hudson.
This has allowed for two things: tailoring their products based on the online feedback of their customers; and, appealing to a new generation of consumers that previously would have been unable to access the franchise.
While players of video games will jump between different manufacturers, customers who engage in tabletop wargames tend to have a high degree of brand loyalty.
“I’ve heard it been described as ‘plastic crack’,” said the fund manager. “Considering the breadth of different characters and different types of soldiers they pretty much have a monopoly on the tabletop war games.”
One of the most popular miniature wargames in the world is Warhammer 40K, first produced by Games Workshop in 1987. And as of July 2020, it is now on its ninth edition.
“There was such a high demand for this game that the pre-order was sold out in minutes,” he said. “They were deliberating limiting releases as they couldn’t keep the supply up with demand.”
Hudson said another of the key drivers of the business lies in monetising its intellectual property, specifically the Warhammer franchise.
The Premier UK Growth manager said more than 30 years of storylines and characters have created a plethora of content to work with and there have been some successful ventures and partnerships with video game developers.
Further interesting developments in the works include a live-action TV series based on one of the franchises popular characters and a comic series with Marvel.
“It’s mutually beneficial for both parties. If you’re a computer games developer having the Warhammer franchise is extremely lucrative as it will create substantial interest in your game,” said Hudson. “For Games Workshop they get royalties for each game that sells, which is incredibly profitable as there’s no costs attached to that at all.
“All the costs are historical, all the designs, drawings and stories which have been made years before. Every pound they take in royalties is a pound of profit.”
The company formed a partnership with video game developer Frontier Development – another of the Premier UK Growth top holdings – which will develop a game based on the Warhammer: Age of Sigma franchise with an expected release of 2023.
Hudson said this seems like a ‘match made in heaven’ as both have a strong reputation for producing high-quality strategy games. 
“The management have a great track record of overpromising and underdelivering,” he added.
Tom Sieber (pictured), markets analyst at AJ Bell, said while licensing its intellectual property for video games, films and television is enticing, there are no guarantees in these ventures and “royalty revenue can be lumpy and unpredictable”.
“The new content could be a double-edged sword if it’s not seen as being true to the created world,” he said. “It may receive a very negative reaction online, damaging its chances of success.”
He noted that coronavirus may affect any television series as many live-action productions have been postponed and abruptly halted during the past six five months.
“The economic impact of the pandemic could also affect the appetite to spend even among the very devoted hobbyists which make up Games Workshop’s customer base,” said Sieber. “A longer-term factor to watch is the growth of 3D printing and whether this opens up the design and manufacture of miniatures in a way which undermines demand for Games Workshop produced wares.”