Games Workshop (LSE: GAW) warned in January that pre-tax profit for its financial year to May would be unlikely to exceed £16m. However, the company has bounced back since its disappointing December. Today, in its annual results, it posted a pre-tax profit of £16.9m. That’s a modest rise of 2.1% on last year, but earnings per share rose 9.9% due to a lower tax rate.
At a share price of 455p, the price-to-earnings (P/E) ratio is cheap-looking 10.8. And, after paying a 40p dividend during the year, the trailing yield is a whopping 8.8%.
This highly cash-generative company is run with no debt, and the board has a commitment to “distribute genuinely surplus cash to our shareholders”. Thus, after reinvesting £12.6m in the business and distributing £12.8m to shareholders, year-end cash of £11.8m was little changed from last year.
Games Workshop is an international business centrally run from headquarters in Nottingham, with 72% of sales coming from outside the UK. The company has no policy to hedge against foreign exchange exposure and should benefit from the weakness of sterling since the referendum.
PZ Cussons
PZ Cussons (LSE: PZC) also announced annual results today. The performance was creditable, considering a challenging environment in Africa, notably in Nigeria, where the low oil price has “created some of the most difficult trading conditions we have seen for some time”.
However, Cussons’ brand strength in Nigeria — where it’s traded for 130 years — helped limit the impact of the tough environment. And with a strong performance in Europe, group revenue for the year was up 0.3% (5.9% at constant exchange rates). Meanwhile, profit was modestly lower, as the squeeze on disposable income in Nigeria and competitive pricing hurt margins.
Nevertheless, the board increased the dividend by 1.4%, marking a 43rd consecutive period of year-on-year increases, and said things in Nigeria have begun to improve since the year end.
With its wide geographic diversification — which also includes Australia and Asia — Cussons offers a good antidote to Brexit. At 326p, the shares aren’t cheap on a trailing P/E of 18.9. But with a useful yield of 2.5% and, in my view, a bright long-term future, this looks a perfectly buyable stock at current levels.
Lloyds
The Brexit vote is considerably more problematic for Lloyds (LSE: LLOY). I’d been warming to the bank’s prospects earlier this year, particularly the potential for a high and rising dividend income, but the Leave vote has thrown up issues for Lloyds and uncertainties for the investment case.
In particular, the dividend outlook has already darkened. The Bank of England has relaxed banks’ required capital reserves, but advised that “firms do not increase dividends and other distributions as a result of this action”.
Challenger bank Virgin Money, in its half-year results this morning, downgraded its previous financial guidance on net interest margin and return on equity, citing a number of potential adverse impacts on business, including the possibility of the Bank Base Rate being reduced and staying low for a long period of time.
While Lloyds currently trades on a ‘bargain basement’ single-digit P/E , I’m not rushing to buy today. The company is set to announce its half-year report on Thursday and I believe it prudent to wait and hear what management has to say before deciding whether the Black Horse is a Brexit bargain.
