Games Workshop - A Contrarian Value Play / Augmented Reality Investment?


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.


I agree - GW looks very tasty. I very much doubt that you could pick it up at a good price now, however if a hard Brexit is on the horizon you might be able to pick it up at a good price.

Personally, I would be very interested in the developments in Asia and the expansion of their IP operation.

New technologies like VR and AR are growing markets - I can see it as an augmented reality investment in particular… It is very easy to imagine emerging developers wanting to cash in on GW IP for augmented reality tabletop gaming.

One final thing that perks my interest. When companies like this have a loyal following, they do not need to pay for marketing. In the financial statement above, the marketing costs are almost nothing (£.6). When you run an online forum like that, the customers do the marketing for you!

My suspicions it turns out were correct:

That forum will continue to generate loyal fans and customers over time. I am sure that the 4m is actually a far smaller group of people - but still. The savings potential is absolutely massive.

Finally, fairly chunky 4% dividend - yes, please!