Sector Spotlight: Leisure Services

This week's sector spotlight looks at Leisure Services; it's a small sector with three companies of reasonable size: Games Workshop, Hornby and Photo-Me.

Article updated: 20 November 2020 1:00pm Author: Michael Baxter

In the sector spotlights, I only look at companies with a market cap of over £50 million. That is not to say that smaller companies are not necessarily good investments, but I would say that as a rough rule of thumb, investing in smaller companies requires specialist knowledge of the companies in question. Six companies fall within Leisure Services, but only three: Games Workshop, Hornby and Photo-Me International have market capitalisations over £50 million.

Of the three companies, two have had an outstanding Covid crisis. One has had a poor crisis. You could sum up the two companies that did well with the description: 'things you can do at home.'

Games Workshop and Hornby had a good crisis, Photo-Me, was hit hard.

All three companies appear to have strong balance sheets.

Let's drill down.

Games Workshop

Look at the Games Workshop share price history, and you see an interesting story. From stock market debut to around 2017, shares barely flickered. At the beginning of 2017, shares were barely higher than in 1999. Since then, they have increased by more than ten-fold.

In the early days of the Covid crisis, markets sold shares in the Company. Between the beginning of February and mid-March shares almost halved. They have surged since then.

The latest trading update was good, and CEO Kevin Rountree, said: "This has been driven by healthy growth in our online and trade channels. Our retail channel is still recovering from the Covid-19 closures both currently (170 stores) as well as earlier in 2020."

When it released its results in July, Mr Rountree said: "An amazing set of results - the best year in Games Workshop's history, so far. You can once again see from these results that our business and the Warhammer hobby are in good shape."

The numbers will tell you more, but let me draw your attention to the balance sheet, I guess the word 'mighty' is apt.

Share price 9,945p
2020 high 11,460p
2020 low 3,590p
Five year high (2020) 11,460p
All time high (2020) 11,460p
Change last 12 months 73%
Change last five years 1,547%
Change since 1998 1,402%
Market cap £m 3,258
Yield % 0.3
P/E 45
Revenue growth since 2015 128.8%
Pre-tax profits growth since 2015 423.5%
Total assets/total liabilities 2.9%
Current assets/total liabilities 1.3%
Current assets/current liabilities 2.2%
net assets £m  134


All change at Covid junction — the Hornby performance had been mediocre at best for years, then Covid happened. It seems people needed cheering up and model train sets were in.

In its latest half-year, the Company revealed its first profit in ten years.

Lyndon Davies, the Group's chief executive, said: "Hornby has moved into profitability, the growing sales and margins built on the back of the introduction of some fantastic new products, new technology and the changing environment."

We are heading into our key Christmas trading period, and right now, it is hard to tell what the outcome will be for the full-year results. Our sales continue to be higher than where they were last year, and there is a real energy within the Company for the Christmas season."

Take a look at the hard data. The growth in profits and revenue shown below covers 12 month periods only, and we don't have results for the 12-months that included a Covid-effect.

The question investors may want to ask themselves is whether, once the Covid-crisis draws to an end, Hornby will remain as popular.

Share price 68.5p
2020 high 71p
2020 low 26p
Five year high (2015) 85.68p
All time high (2007) 278p
Change last 12 months 121%
Change last five years -20%
Change since 1996 6,750%
Market cap £m 114
P/E -26
Revenue growth since 2015 -32.1%
Pre-tax profits growth since 2015 -75.7%
Total assets/total liabilities 5.6%
Current assets/total liabilities 3.4%
Current assets/current liabilities 5.4%
net assets £m  37.0

Photo-me international

Before Covid, I would have said the best word to describe Photo-Me was 'alright.' Revenue had grown reasonably well over the past five years, profits growth was less, but at least it grew. So, that was alright.

The share price was not reflecting this. Between 2017 and the beginning of this year, shares roughly halved. 

They have almost halved again this year.

The falls in the share price make the last dividend yield look stunningly good. The question is, will the dividend be cut in future years? We don't know what will happen to dividends this year, but if they return to the 2019 level next year and stay there, then that yield makes shares tempting.

So, is the dividend sustainable in the long run?  One piece of encouraging data is the strong balance sheet. Also, in the last six months period before Covid, profits and Revenue saw some growth. But in the six months to the end of April, results took a hard knock.

Commenting on the latest results: Serge Crasnianski, CEO & Deputy Chairman, said:

"The pandemic has and continues to have a significant impact on all the Group's end markets, resulting in lower consumer demand. The Board believes that activity levels could take some time to return to pre-COVID-19 levels.

"A thorough review of the business is underway, and restructuring programmes are being implemented to better align operations to the current trading conditions. The Board will provide an update on market guidance once it has more clarity around the extent and duration of the COVID-19 impact, and when the outlook for the business becomes clearer.

"Looking ahead, the Group will continue to seek to diversify its operations primarily through investment in its Laundry rollout programme and through KIS Food product Innovation."

Share price 55p
2020 high 96.6p
2020 low 35.3p
Five year high (2018) 183p
All time high (2000) 436p
Change last 12 months -38%
Change last five years -65%
Change since 1998 31%
Market cap £m 209
Yield % 15
P/E 178
Revenue growth since 2015 23.9%
Pre-tax profits growth since 2015 5.0%
Total assets/total liabilities 2.1%
Current assets/total liabilities 1.0%
Current assets/current liabilities 2.0%
net assets £m 144

All prices are approximate figures taken from 20 November 2020.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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