Cube Midcap Report (Fri 7 June 2019) – GAW, BAG, AJB

Cube Midcap Report (Fri 7 June 2019) – GAW, BAG, AJB

Good morning!

Today we have:

Games Workshop

  • Share price: £46.48 (+4.5%)
  • Market cap: £1,510 million

Trading update

It’s a solid update from the owner of the Warhammer franchise, which is a slight improvement on the prior update (April 12).

Edison released a note on April 17, targeting revenues of £255 million and reported PBT of £80.8 million for the current financial year. The “consensus” PBT number was £80.4 million.

Today’s update gives us a marginally lower revenue number than Edison, but the PBT number is about right. The company has guided for sales of £254 million and PBT of not less than £80 million.

The market has reacted strongly, pushing the shares up by 4.5%. Some positive elements of the update are:

  • Nice PBT progression from “c. £80 million” in the last update to “not less than £80 million” today. Reflects well on the company’s expectations management.
  • £5 million staff bonus paid on an equal basis to all employees. Shareholders like companies which can afford to treat hard-working employees well, including those at junior levels! The number of employees is around 1,800, so this makes for a £2,800 bonus each.
  • Another 35p dividend, bringing the dividend for the year to £1.55 per share. The trailing yield is 3.3%, using the latest share price.

My view – I’m likely to remain on the sidelines due to my belief that results could be volatile in accordance with the Warhammer product cycle. Storylines and campaigns come and go, and I would prefer to wait until this company has a quiet year and investor sentiment cools, before dipping my toe in it.

On the other hand, those who are sitting on large capital gains are unlikely to see much reason to cash in their chips at this stage. Who could blame them?

I’m still amazed that there is a miniatures company which is able to get its customers to do the hard work of painting its figurines!

Barr (BAG)

  • Share price: 961.5p (+0.2%)
  • Market cap: £1,094 million

Investment in Stryyk

This is a highly-rated Scottish soft drinks company where I aspire to own shares some day. The company’s flagship drink is IRN-BRU, and it is headquartered near Glasgow. For now, my interest in soft drinks is centred around my holding in Britvic (BVIC).

Today’s announcement from Barr is unlikely to move the needle any time soon, but let’s quickly review:

  • £1 million investment for 20% of STRYYK’s parent company. STRYYK makes alcohol-free rum, gim and vodka.
  • Barr, through its subsidiary, Funkin, will exclusively distribute STRYYK in the UK.

There are some related party matters which are disclosed: the Executive Chairman of Funkin is a founder of STRYYK’s parent company. So a cynical person might suspect that the terms of the deal are unfavourable to Barr.

My view – it’s only £1 million, and therefore not material in the bigger picture for Barr shareholders. I don’t have enough information to determine whether or not the deal is fairly priced for Barr. But I do agree that the alcohol-free segment has terrific growth prospects moving forward. Millenials and Generation Z are remarkably abstemious.


AJ Bell (AJB)

  • Share price: 381p (-5%)
  • Market cap: £1,551 million

Result of placing

Invesco has offloaded 38 million shares of AJ Bell at 380p. This was flagged in a “Proposed Placing” RNS yesterday.

The share price closed at 418p two days ago, so Invesco has swallowed a 9% discount to get rid of these shares. Perhaps we will see some holding RNS announcements from the buyers soon.

Invesco’s remaining stake is 65.6 million shares, or >16% of the company. It intends to remain “a significant, long-term shareholder of the Company”.

My view – Invesco may have portfolio management reasons for doing this, which are beyond my scope of analysis. In terms of raw valuation, I’d much rather be long Hargreaves Lansdown (HL.) rather than AJ Bell at their current respective share prices. The former trades at a forecast P/E ratio of 36x, while the latter is at a forecast P/E ratio of 54x (using last night’s prices).

Back in December, my colleague Andrew explained many of AJB’s attractions and pointed out that it was at a valuation discount to HL. This situation has completely reversed now, and to my eye doesn’t give enough credit to the market leader, which remains HL (even if HL’s reputation has been tarnished by the Woodford fiasco).

So while I don’t know Invesco’s exact reasons for this sale, I would agree that there are likely to be more compelling opportunities elsewhere at AJB’s current share price. A long-HL, short-AJB pairs trade might be interesting!


That’s all the news in my universe of midcaps for today. Thanks for dropping by, and have a good weekend!



PS: Please note that the Cube MidCap Report is taking a break next week. This report will resume on Monday June 17.



Wordpress (6)
  • comment-avatar

    Thanks Graham, as usual a nice read and provides some food for thought.

    No, I won’t be cashing in Games Workshop for the time being. Re Hargreaves Lansdown (which I don’t hold), I just wonder what the chances are that investors who were steered by them towards Woodford’s funds may feel they are due compensation? It was, after all in HL’s Tope 50 Wealth list – they may claim that’s not “advice” but, in that case, what is it?

    • comment-avatar

      Hi Laughton, thanks. Not a lawyer but I can’t imagine what the case might be against HL. The so-called Wealth List didn’t come with any guarantees, did it…?

  • comment-avatar

    I have just moved my wife’s SIPP’s from Standard Life and Hargreaves because of fees that both “platforms” charge for holding funds.  The SL SIPP was, at the time (long story), all in funds and charging was very transparent but horrendous.  

    HL charges 0% for holding stocks and .45% on the first £250k (0% for stocks) of funds held and hence the heavy promotion of funds by HL.  I cannot understand the justification for the separation (of charges for stocks versus funds) but maybe I am showing my ignorance?  I certainly cannot see the justification for a percentage based charges as opposed to a fixed fee per fund or account as is the case with AJ Bell. 

    For me this is the ticking time bomb at HL. It’s the fees that support HL’s extraordinary metrics (64% EBIT margin, ROCE, CROCI etc) and I can see these being banned and/or being competed away by AJ Bell and its ilk (I am with II). AJ Bell has an EBIT margin of 31% if HL’s EBIT margin halved I wonder where that would leave the share price.  I am sure somebody cleverer than me could tell me!

    That’s my penny worth. I am kicking myself for not buying AJB shortly after the IPO, but I was busy with life and I am suspicious in general of IPO’s but at this level I think it has got ahead of itself.  I wouldn’t touch HL for the reasons above.

    • comment-avatar

      Thanks for the feedback PurpleCube. I share your disappointment at not getting involved with a few AJB shares around IPO time, though I have benefited overall from my scepticism towards IPOs.

      Regarding the competitive dynamics in stockbroking, HL does charge hefty amounts and benefits from the fact that most customers are not as engaged and awake as people like yourself.

      One company that I like to refer back to is X-O (Jarvis, ticker JIM). It charges very low commissions and no percentage-based fees. The flat fee for its SIPP is £99, for example. And yet JIM still earns a super return on capital of 68% and an Operating Margin of 43%. So I think that these sorts of companies can earn great returns even if they charge lower rates.

      HL has enjoyed extraordinary pricing power but maybe it will have to retreat a little in the face of Woodford-related reputational damage and increased awareness of alternatives among customers like you.

      Plenty of food for thought anyway.

      All the best,


  • comment-avatar

    PS thank you for these midcap reports they are, like your SCVR’s, just excellent.

  • comment-avatar


    GAW are attempting to resolve the issue of models taking so long to paint (I’m aware of a customer with 7 plastic crates of unopened model armies!!) with the release of new formulation Contrast Paints in June which promise to speed up the painting process. If it works it will help to speed up a potential bottleneck to sales constraint – Paint quicker, buy more, paint more, play more?

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