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 Baragash wrote:

Backfire wrote:

There is no point comparing half-year report with annual report in that respect. In their previous half-year report their cash position was £9.3 million, so you could have made that same claim.

Cash is one of the few things you can compare regardless of the period of time being talked about.

...but then you could have made exact same claim year ago: "OMG they have wasted nearly half of their cash!"
Then only to have it bounce back by June 2014.

Backfire wrote:

 Baragash wrote:

Backfire wrote:

There is no point comparing half-year report with annual report in that respect. In their previous half-year report their cash position was £9.3 million, so you could have made that same claim.

Cash is one of the few things you can compare regardless of the period of time being talked about.

...but then you could have made exact same claim year ago: "OMG they have wasted nearly half of their cash!"
Then only to have it bounce back by June 2014.

Correct. And at the time it would have been true.

In the context of reporting a financial position for a year, it wouldn't.

I will be utterly and totally shocked if their cash and cash equivalents goes back up over 16 million in the next annual report. Unless Warhammer Fantasy Bubbles is a complete success and sells great. Then it could. If they actually have a proper relaunch and get lapsed WFB fans back into the game, then their cash position could be even better than how the previous annual report turned out.

As well, I could be grossly underestimating the impact of December on their sales. Maybe cash from operations for the second half the year will be much larger.

They usually have abetter second half.

I think its easy to predict that GWs cash position is not going to suddenly shoot up above a nominal norm given their falling sales but given the amount of direct sales they do cash generation is never going to be a problem.

Further you need to consider any licence payments they might receive. There seems to be plenty of digital licences being placed, not a few of these may well generate cashflow this period.

Even if they have saturated their market, there's plenty they can do to provide growth. Just think where they'd be if they spent that truly surplus £5 million on acquisitions.

Herzlos wrote:
Even if they have saturated their market, there's plenty they can do to provide growth. Just think where they'd be if they spent that truly surplus £5 million on acquisitions.

The Halo license recently went to Spartan Games. Anyone who thinks that licence wouldn't have helped grow GW or that GW couldn't have gotten it over Spartan if they tried better PM me.
I have some magic beans for sale

I love reading threads where a bunch of gamers try to be financial analysts.

We wrote:
I love reading threads where a bunch of gamers try to be financial analysts.

Or, another way at looking at it would be that the thread is full of financial analysts who like to wargame.

I think there is a fair cross section of professional types who frequent this site. We do not all game from our parent's spare rooms.

We wrote:
I love reading threads where a bunch of gamers try to be financial analysts.

What about threads where a bunch of people who have real world experience that gives them some insight, who also happen to be gamers?

But, no, if you're in a position to criticise, that must mean you are a financial analyst, right? Otherwise, regardless of other people's backgrounds, how would you know to assess the veracity of what they were saying?

So please, go on, enlighten us, tell us where we've all gone wrong, and put forward your own, no doubt highly qualified, opinion.

Because if you don't have one, and you'd just posted in this thread to snark at people, that'd be a pretty poor show.

I'm a former corporate accountant. I'm long out of practice, having spent the last decade running a tutoring business for students who are recent immigrants to Canada where my accounting tasks are obviously much, much smaller in scope. I would now consider myself an educator before I considered myself an accountant.

Definitely not a professional analyst and if I was, I think I'd stick to companies that are a bit larger than GW as there's more work there as there are more investors into stocks that are not a tiny micro-cap like GW.

Do I think there are mistakes in my take on things? Absolutely. Like how I just totally underestimated GW's 2nd half's generation of cash from operations. What am I confident about:

1) Kirby isn't lying when he describes GW as an efficient cash generating machine. If a single pence isn't needed for the business, it will be paid out as a dividend.

2) The dividend payout ratios of the last few years are way, way higher than during the LOTR booms. As are the earnings per share. Cutting costs and jacking up prices worked in terms of transitioning the business from growth to a high margin, premium retailer.

3) It worked though, at the expenses of volume. If you have flat or declining revenue and rising prices, you must have lower volume. Some combination of less customers and those customers each buying less.

4) GW has good credit relationships and can likely operate at a loss for quite some time. Any predictions of their demise is likely woefully premature.

5) GW is at least partially right in how they see their customer base. They put out splash releases and people keep buying them. Less people, sure, but still loads.

6) Protecting margins through price hikes and cutting costs is GW's number 1 priority. They will (and already have) willingly sacrifice volume and market share to maintain their margins.

7) There are enough people around the world who will pay Forgeworld and GW Australia level prices for plastics in order for GW to operate a reduced size version of themselves at a profit. Many releases are already there. Like 5 figure Elite boxes for 40k that are the same price per figure as FW Infantry like Deathkorps. Even more expensive depending on where you are in the world.

8) GW's cash position will worsen. They maintained a high dividend in the face of declining revenue. While I was wrong to imply they were running on empty, it's not a coincidence that the contractual obligations and the dividend payment happen to equal their previously reported cash position. See item 1) for why.

9) GW will probably be able to maintain a 16p dividend for at least one more half, more if they are willing to borrow. It's only 5.1 million pounds to pay it and GW's cash from operations should be sufficient for the foreseeable future. Eventually though, it will have to be cut.

10) The relaunch of WFB will be a very important release for GW. It's their first real attempt at drastically changing a game in over a decade. It will be the big splash release of 2015 just like 7th edition 40k was last year. If WFB 9th is successful, it could completely change the outlook for GW going forward and embolden them to make changes to 40k in the future.

11) If Kirby ever divests himself of GW shares (he may keep them and pass them on to his heirs) it will not be on the public exchange. It will be either a private sale to an institutional investor or a share buy back directly to GW. No one holding GW shares wants to see 7% of the total number of shares suddenly flood the market. If Kirby ever wants out, he'll be able to get out at a very good price.


.

I just wanted to add one thing. I don't have the financial knowledge to know if Kirby is simply trying to draw as much capital at all out of a slowly sinking ship. Though, that is how it looks to an outsider like me. Still..

Kirby being one of the big reasons that GW grew as much as it did is not at all mutually exclusive from the possibility that he is also trying to pay himself (and the other shareholders) as much as possible before it all collapses.

 frozenwastes wrote:
2) The dividend payout ratios of the last few years are way, way higher than during the LOTR booms. As are the earnings per share.

GW management are very concerned about the risk of a (hostile or at least unwelcome) takeover (because a medium/long term trend of underperforming + low debt + efficient cash generation = tempting target), keeping the share price up whilst they hope that one of the many initiatives they throw out suddenly reverses the trend is part of that (or at least force such a takeover to pay IMO a ridiculous premium for the state of the company - looking at historical trends and a qualitative view of the business I think they're about 300-350p too expensive).

Baragash wrote:
GW management are very concerned about the risk of a (hostile or at least unwelcome) takeover (because a medium/long term trend of underperforming + low debt + efficient cash generation = tempting target), keeping the share price up whilst they hope that one of the many initiatives they throw out suddenly reverses the trend is part of that (or at least force such a takeover to pay IMO a ridiculous premium for the state of the company - looking at historical trends and a qualitative view of the business I think they're about 300-350p too expensive).

That's very interesting. I always thought that Kirby et al may welcome the right kind of buy out or merger. A welcome take over would be another way he could dispose of his shares at a higher price. It would also be a nice final achievement in his career. The sale of GW to a larger company. An unwelcome take over though would be really bad. Especially if they disagreed with him about dividend pay out ratios and the like. Or just wanted to replace the board entirely. Being forced out isn't the type of thing one wants as an end of a career. I know the latest board member GW added has previous experience in mergers. I wonder if that experience is equally applicable in avoiding them. GW suddenly dipping into the red and having to completely cut their dividends could certainly drive the pricing down the 300-350p given the relatively low volume the stock trades.

Eilif wrote:I just wanted to add one thing. I don't have the financial knowledge to know if Kirby is simply trying to draw as much capital at all out of a slowly sinking ship. Though, that is how it looks to an outsider like me. Still..

Kirby being one of the big reasons that GW grew as much as it did is not at all mutually exclusive from the possibility that he is also trying to pay himself (and the other shareholders) as much as possible before it all collapses.

A less nefarious interpretation of the high dividend payout ratio is that GW is trying to maintain their share price through yield alone, but I suspect the real reason is that Kirby can get far more of each year's earnings into his own pocket by paying out such a high ratio than he'd ever get by going with a more conservative dividend policy.

That said, I don't think it's a matter of rats fleeing a sinking ship. I actually think GW is right that there is a sufficiently large group of "true believers" who will buy GW products at nearly any price. That will pay Forge World prices for GW plastics. And that if GW can manage their expenses, they can decline and stabilize with a business built on their ideal customer. They just need the right combination of store location and staff and a good means of feeding customers currently using other channels onto their online store to capture even more margins.

As someone who already does a lot of fantasy skirmish gaming with miniatures from lots of different companies, I'm interested to see what WFB 9th will really be like. And how it will fit into GW's current plan of low volume and high price with as much direct sales as possible. Or if it will represent a departure from their current approach. An honest attempt to try something new or return to something that worked well in the past.

The irony being that if more focus was placed on growth and development over the slash and burn, short term profit and dividend milking approach we have currently, the dividends would ultimately pay the same, or higher, and the share price would also likely be a lot healthier as people saw the revenue and profit underpinning those dividends.

But that only makes sense when you're not 2 years from retirement I guess.

Hey just wanted to say thanks for the analysis. It was very interesting read and some well thought out Ideas about whats going on. Also simple enough for a guy like me to understand.

Oh poo. Leto maintains his stranglehold for another few centuries.

Tenuously related anecdote:

I was watching an episode of NCIS: LA last night, during the opening scenes banter LL Cool J's character uses the word "otiose".

Of course, there's a great many things wrong with the above sentence, but I think the worst thing is the warm fuzzies I got from recognising the word - Tom Kirby, I salute you.

Tom Kirby: Here to take your money and Educate.

Next stop Nobel Prize.......

 Baragash wrote:

 frozenwastes wrote:
2) The dividend payout ratios of the last few years are way, way higher than during the LOTR booms. As are the earnings per share.

GW management are very concerned about the risk of a (hostile or at least unwelcome) takeover (because a medium/long term trend of underperforming + low debt + efficient cash generation = tempting target), keeping the share price up whilst they hope that one of the many initiatives they throw out suddenly reverses the trend is part of that (or at least force such a takeover to pay IMO a ridiculous premium for the state of the company - looking at historical trends and a qualitative view of the business I think they're about 300-350p too expensive).

There is of course more mundane explanation for propping up the share price: to prop up the share price. It is a reward for the investors just like a dividend. Many companies (most notably, Apple) buy their own shares to boost the share price, benefit of which goes straight to the investors.

Backfire wrote:

 Baragash wrote:

 frozenwastes wrote:
2) The dividend payout ratios of the last few years are way, way higher than during the LOTR booms. As are the earnings per share.

GW management are very concerned about the risk of a (hostile or at least unwelcome) takeover (because a medium/long term trend of underperforming + low debt + efficient cash generation = tempting target), keeping the share price up whilst they hope that one of the many initiatives they throw out suddenly reverses the trend is part of that (or at least force such a takeover to pay IMO a ridiculous premium for the state of the company - looking at historical trends and a qualitative view of the business I think they're about 300-350p too expensive).

There is of course more mundane explanation for propping up the share price: to prop up the share price. It is a reward for the investors just like a dividend. Many companies (most notably, Apple) buy their own shares to boost the share price, benefit of which goes straight to the investors.

A share buyback gives value to investors by literally giving them cash through a mechanism more tax efficient than dividends (which is actually why Apple have done it, Carl Ichan wants more of the wealth shared with shareholders. His actual mechanism for driving up price is PR, by continually talking up Apple being undervalued and publicising his opinion to generate additional demand for shares). There is no guarantee that it will lead to a net gain in the share price because you can't guarantee how the market will react (because a share buyback reduces the net book value of the company as a result of the cash deduction).

If you were to assume that the market had a perfectly neutral reaction to the buyback, the total value of shares held by an investor would be the same before and after.

Apple mostly buy back as they have soooo much cash just sitting off shore ($142Bn) avoiding US taxes they have to do something with it; and mergers and acquisitions can only use up so much cash.

 notprop wrote:
Apple mostly buy back as they have soooo much cash just sitting off shore ($142Bn) avoiding US taxes they have to do something with it; and mergers and acquisitions can only use up so much cash.

Yes, as Baragash said, it is basically a form of dividend.

 Azreal13 wrote:

We wrote:
I love reading threads where a bunch of gamers try to be financial analysts.

What about threads where a bunch of people who have real world experience that gives them some insight, who also happen to be gamers?

But, no, if you're in a position to criticise, that must mean you are a financial analyst, right? Otherwise, regardless of other people's backgrounds, how would you know to assess the veracity of what they were saying?

So please, go on, enlighten us, tell us where we've all gone wrong, and put forward your own, no doubt highly qualified, opinion.

Because if you don't have one, and you'd just posted in this thread to snark at people, that'd be a pretty poor show.

Nope I am not a financial analyst although I do know enough to know I don't know which is why I keep my mouth shut. A few of you seem to know a thing or two about finance and business but the majority of you are talking out your ass and it is hilarious.

The fact is GW is a profitable company with no debt that can afford to pay a dividend. Is it too big, too small? I don't know, nor does anyone here. Are sales declining? Yes. Will GW go under? Maybe one day but not in the immediate future. Could GW make more money? Probably, and it is a shame they don't improve their business model and game to do that. However, I think they are happy with the millions they make and are just milking that cash cow for all its worth.

All we can decide is if we want to keep doing business with GW in the form of buying their product or investing in their stock, each person must decide that for themselves.

We wrote:

 Azreal13 wrote:

We wrote:
I love reading threads where a bunch of gamers try to be financial analysts.

What about threads where a bunch of people who have real world experience that gives them some insight, who also happen to be gamers?

But, no, if you're in a position to criticise, that must mean you are a financial analyst, right? Otherwise, regardless of other people's backgrounds, how would you know to assess the veracity of what they were saying?

So please, go on, enlighten us, tell us where we've all gone wrong, and put forward your own, no doubt highly qualified, opinion.

Because if you don't have one, and you'd just posted in this thread to snark at people, that'd be a pretty poor show.

Nope I am not a financial analyst although I do know enough to know I don't know which is why I keep my mouth shut. A few of you seem to know a thing or two about finance and business but the majority of you are talking out your ass and it is hilarious.

The fact is GW is a profitable company with no debt that can afford to pay a dividend. Is it too big, too small? I don't know, nor does anyone here. Are sales declining? Yes. Will GW go under? Maybe one day but not in the immediate future. Could GW make more money? Probably, and it is a shame they don't improve their business model and game to do that. However, I think they are happy with the millions they make and are just milking that cash cow for all its worth.

All we can decide is if we want to keep doing business with GW in the form of buying their product or investing in their stock, each person must decide that for themselves.

And in that case the numbers will likely continue lining up against GW.

The question to ask is not 'Can GW afford to pay a dividend?'

'Is GW giving a dividend the best use of its resources?' is what needs to be asked.

Shaking the Magic 8 Ball gets 'Signs Point To No'.

If your share of the marketplace is shrinking then you need to do something to get a larger share of that market - GW could have spent some of that money on market research, but instead they gave it away.

If your sales are dropping then you need to do something to increase sales - GW could have spent some of that money on market research, but instead they gave it away.

Things are not going well for GW now.

But they are still paying out dividends instead of trying to find out what they are doing wrong.

Kirby has been pretty public about his disdain for the people that buy his products.

He has been pretty public about his disdain for market research. (And giving folks a quickaddition to their vocabulary in the process.)

But he gets a pretty big chunk of money in his pocket for paying out the dividends....

Gee... I wonder why he is giving out dividends?...

Dividends are what you pay out when your company is doing well - and GW is not doing well, shrinking marketshare followed by shrinking sales is not an indicator that you should pay out a dividend.

For years people were saying that TSR was making poor business decisions, with others saying that, no, there was no way that TSR could possibly go under.

Then it turned out that, yes, TSR had been making poor business decisions, and that TSR could go under.

WotC buying TSR was a good thing - otherwise it would have gone into receivership and gutted.

But the folks wanting WotC to buy GW? WotC was an independent company when it made the decision to buy out TSR.

And they did so in part because they loved the hobby.

Hasbro is under no such influence - and have a history of buying healthy companies, not ones that are steaming toward the rocks.

The Auld Grump