Some people in the forum might remember warhammer - the tabletop game of orcs, globins, spacemarines etc.
I recently listened to a podcast interview with the company founder, Ken Livingstone and agreeing with a lot of his views on gaming I decided to check out the stock…
Turns out this small cap is a value investing monster:
In the last two years, the company has returned nearly 500% percent to shareholders and was one of the best performing stocks in the market:
I had a look and came across a few things that I found interesting about the stock.
1. Royalty income.
The company generates a small amount of royalty income each year - £7m - an increase from £5 from the previous year However, it is very restrictive as t you it allows use the intellectual property. If a game developer makes a terrible game it affects the brand. This means that the company has much further to go in terms of royalty income.
If the company could put in place a system to protect their brand, but maximise royalties, it would quickly become a cash cow.
2. Lindy Effect
The lindy effect is something I picked up from Author Ryan Holiday. It’s basic premise is as follows:
The Lindy effect is a concept that the future life expectancy of some non-perishable things like a technology or an idea is proportional to their current age, so that every additional period of survival implies a longer remaining life expectancy.
In other words, things that have lasted a long time will last long in the future, because they have been tested over time to be effective.
If Warhammer 40k (GW’s flagship product) was invented in the 1970s and is still being played today, the lindy effect would imply that the game and the IP will continue generating profits long into the future…
3. Shareholder Focus
GW is very shareholder focused. The company recognises that the protection of the brand is imperative to the long-term success of the brand, so they are careful who they lease it to.
The business is beginning to focus on this now as the shareholder letter in 2017 sets out:
IP exploitation. I have a small team of advisors that are helping me ensure we have an exciting five year plan to
maximise the income we earn from external global partners who can deliver incremental value to Games Workshop
without causing any harm to the core business.
4. Other Investors
Having a look at the other investors in GW, it’s a pretty beefy line-up!
What does everyone think?
It could also be a virtual reality investment and an augmented reality investment.