Markets continue to rally, while Games Workshop’s problems get worse

“The FTSE 100 continued its winning streak, rising a further 0.4% to 7,368 as investors brushed off fears over the Omicron variant and regained their appetite for risk,” comments Russ Mould, Investment Director at AJ Bell.

“Even Asian stocks pressed ahead despite gigantic Chinese property developer Evergrande being on the verge of collapse.

“A few months ago, Evergrande’s failure to make bond repayments spooked global markets and led to speculation of a potential crisis in China’s property and financial system. Now it seems as if markets have just accepted that Evergrande could collapse and there is no panic.

“On the UK market, Southern England-focused housebuilder Berkeley was the top riser, up nearly 5% on improved earnings expectations. It said sales have recovered to pre-pandemic levels and earnings guidance for this financial year has been lifted by 5%, with 5% annual profit growth expected for the next three years. This follows recent figures from Nationwide which showed the UK property market was still red hot.

“Centrica has been trying to streamline its business for several years and progress has been slow on this front. The market didn’t seem too impressed by an £800 million deal to sell its Norwegian oil and gas assets, with the share price barely moving.”

Games Workshop

“After upsetting many of its loyal fans by saying they couldn’t create films or animations using its intellectual property, nor make 3D printed versions of its products, Games Workshop has now left shareholders feeling glum.

“Profit has been hit by unfavourable foreign exchange rates and higher costs for shipping goods and paying staff.

“Admittedly these issues are plaguing lots of companies but nonetheless it means a blot on Games Workshop’s track record for under-promising and over-delivering.

“This time it hasn’t been able to live up to expectations. When you’re a business who makes money from creating exciting fantasy worlds, delivering a harsh reality can be brutal.

“Games Workshop has commanded a premium rating for its shares in recent years after delivering impressive earnings growth. Sadly, the current news flow from the company has led some investors to question this high rating.

“But equally, there will be other investors taking a longer-term view who might look at the current share price weakness as a chance to buy a quality business at a more affordable price.

“A key attraction is Games Workshop’s intention to boost income from licensing its intellectual property for use in games, films and TV – hence why it has been taking a harsh stance on people using its assets without permission and payment.

“Licensing income more than doubled in its most recent half-year period, year-on-year, to circa £19 million thanks to important computer games deals. The market will want to see more of this good news in 2022.”

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