Games Workshop’s shares take wild swings after underwhelming profit update
Games Workshop suffered nearly a six per cent drop in its share price on Wednesday morning after it reported higher carriage costs and increased staff expenditure ahead of its half-year results next month.
Share prices recovered later in the day, with the company taking investors on a wild stock market journey before recovering to a slight loss of 0.36 per cent on the FTSE 250 at close of play.
The wargaming and fantasy figurines specialist spooked investors, causing shares to slip, by announcing profits could be below previous figures ahead of its half-year results in January.
The company has benefitted from the home hobby boom during the pandemic, and the subsequent re-opening of retail stores to newly enthusiastic customers.
It now expects revenues of at least £190m in its upcoming half-year results, with trading in line with the high expectations established in its September update – passing the previous six-month revenues of £186.8m.
The company has also enjoyed a £19m licensing income boost from computer game developers.
However, it has failed to replicate rocketing revenues with soaring profits.
Gross profits expectations are barely in line with last year’s numbers – with estimates of at least £86m before tax, compared to £91.6m in 2020 over the comparable six-month window.
Carriage costs have risen over the past six months, while the pay-out it is providing to staff for exceptional performance has increased in line with staff numbers.
The £2,500 cash reward to each employee will cost the company £6.9m – up from £6.1m last year.
The profit stagnation is all the more disappointing after Games Workshop posted strong full-year results this summer – with revenues rocketing to £353.2m and an operating profit of £151.7m, alongside earnings per share at a healthy 372.7p.
Laith Khalaf, head of investment analysis at AJ Bell told City A.M that Games Workshop is vulnerable to volatile market performance.
He said: “It’s a mid cap stock which trades on an elevated valuation, which makes it prone to bigger setbacks when growth disappoints, because a fair amount of expectation is already based into the price.”
Commenting on the wider market conditions he added: “The last year has also been characterised by a tussle between value and growth, between inflation and deflation and between restrictions and freedom, which has no doubt exacerbated volatility, particularly amongst companies like Games Workshop which were perceived to be lockdown winners.”
Further details of the company’s performance will be announced in the half yearly report which will be released on 11 January 2022.