Spoils of war for Games Workshop?



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There is a whole army of teenagers (of all ages) dedicated to war-gaming — a leisure activity which entered the public consciousness through the growth of the Dungeons & Dragons brand in the mid-1970s.

The rise of fantasy tabletop games — a pastime at once collective and insular — has created tremendous commercial opportunities, a point not lost on shareholders in Games Workshop.

The chain has expanded sales by an average of 21.2 per cent a year since Kevin Rountree assumed control back in 2015, reflecting the successful relaunch of its core fantasy title: Warhammer Age of Sigmar. A relatively high level of operational gearing has underpinned annualised profit growth of 48.9 per cent over the same period. You would have a virtual “ten bagger” if you had invested in the stock at the beginning of 2017, but is the Age of Sigmar drawing to a close?

The group has been boosting logistics and is looking to expand digitally, and there is also a Warhammer TV series in the offing. But these growth rates aren’t sustainable indefinitely, even though the December half-year figures were outstanding. There is a little more working capital locked-in than usual and sterling appreciation could also have a detrimental effect on margins.

So with Mr Rountree, chairman Nick Donaldson and finance director Rachel Tongue selling £1.3m in shares between them, you might be entitled to ask whether the shares have hit a high-water mark. But even though Games Workshop is not an easy business to forecast or value, management has demonstrated a consistent ability to identify and adapt to the needs of its customer base.

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In the educational section of Hargreaves Lansdown’s website, there is an article that encourages readers to spread their investments through a diversified portfolio. The fund supermarket’s founder appears to have taken note. Last week — ostensibly to “diversity his assets” — Peter Hargreaves sold 34.4m shares in an expanded placing with institutional investors, netting £550m in the process.

At first glance, Mr Hargreaves is simply practising what the company preaches. At the same time, his residual 24.4 per cent stake — worth £1.89bn at the current price — means a huge slug of his wealth remains tied up in the group.

But there are good reasons to view this trade as more than simply portfolio tweaking, not least of which because the placing was priced 35 per cent below last May’s all-time high. Since then, the company has been rocked by the Neil Woodford debacle, and trading which chief executive Chris Hill described as “challenging” in the six months to December.

Net flows appear to have slowed. Indeed, in the final three months of 2019, the company saw net client inflows of just £200m, if you exclude the deposit-like client cash flowing to the platform’s Active Savings portal. On an annualised basis, that translates to net inflows of just 1 per cent, prompting analysts at Berenberg to ponder whether a structural or cyclical shift is under way and describe the current quarter as a “make-or-break” moment.

Having built his enormous wealth on a keen understanding of retail investor sentiment, Mr Hargreaves may also have concluded that coronavirus-related jitters in bond, currency and commodity markets could soon spread to equities. Recent evidence suggests actively managed funds have suffered outflows in recent weeks, raising questions over a leveraged play on retail investor risk appetite.

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Mr Hargreaves sold his stake just days after Michael Howard, the founder of rival investment platform IntegraFin disposed of a £39.5m stake — in part for “diversification purposes”.



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