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Analysis of Financial Performance and
Position
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Games Workshop Plc & Hornby Plc

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Muhammad Umair Khan/Finance/Lahore

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Introduction

We analyzed the performance of Hornby Plc and Games Workshop Plc, two separate
entities. We understand that in order to make an investment, companies stock prices
should be evaluated technically and fundamentally. We have considered annual reports
and industry news as our sources of data for analysis. We will be using some of the most
commonly used ratios as far as fundamental analysis is concerned.
Highlights of our data analyzed are as follows:

Hornby Plc Games Workshop Plc

Hornby 2016 2017 2016 2017
Revenue GBP Mil 56 47 118 158
Gross Margin % 39 38.3 68.3 72.4
Operating Income GBP Mil -13 -7 17 38
Operating Margin % -23.5 -13.9 14.3 24.2
Net Income GBP Mil -14 -10 13 31
Earnings Per Share GBP -0.28 -0.13 0.42 0.94
Dividends GBP 0.4 0.8
Payout Ratio % * 93 73.7
Shares Mil 49 76 32 32
Book Value Per Share * GBP 1.56 1.83
Operating Cash Flow GBP Mil -10 0 24 44
Cap Spending GBP Mil -5 -2 -13 -13
Free Cash Flow GBP Mil -14 -2 12 31
Free Cash Flow Per Share * GBP 0.34 0.67
Working Capital GBP Mil 14 13 16 21

[1]
  Analysis of sales and profitability

 Revenues:

Workshop Plc
Hornby Plc
180
58 160
56 140
54 120
52 100
50 Revenue GBP
Revenue GBP 80
Mil
48 Mil 60
46 40
44 20
42 0
A-2016 B-2017 A-2016 B-2017

The revenues for Hornby Plc declined by 16% whereas the revenue for Workshop Plc
increased by almost 33%. The significant increase in revenues for Workshop Plc was
mainly because of increased “Trade Revenues” that mostly comprises of regions of UK and
continental Europe and North America. For Hornby Plc the drop was because of the
reduction in the scale of business in line with the turnaround plan (Annual Report 2017).
 Revenues from Segments:
The revenues increased from all
segments in 2017. The increase in Revenue Segments
revenues was because of
increased volumes affected by the
Mail Order
sales mix of new and existing
product. (34% from new sales and Retail 2016
66% from existing product). The
2017
weakened pound facilitated the Trade
revenue increase discussed above.
(https://www.bbc.com/news/uk- 0 20,000 40,000 60,000 80,000
england-nottinghamshire-
45019803) . Second factor that contributed to the increased sales was the 71% jump in
online sales from UK and continental Europe that skyrocketed the revenues
(https://www.independent.co.uk/news/business/news/games-workshop-sales-profits-
latest-updates-warhammer-2017-a8149201.html).

[2]
  Domestic and Regional
Revenues: Region Wise Sales for Games Workshop
For Games Workshop Plc the sales Plc (In 'Million) 2016
from UK and Europe increased by 2017
almost 34% whereas for North Rest of the World
America the increase was almost Asia
39%. The total of sales of UK Black Library
(Including Europe) and North Australia And…
America comprised 33% of the total UK & Continental Europe
company sales in 2017 and almost North America
32% in 2016. Other regions such as 0 20 40 60 80
Australia, New Zealand, Asia and
rest of the world also doubled as compared to 2016, but they make up a smaller portion of
annual sales as compared to UK and North America. The retail revenues also grew by 33%
in 2017 and comprised 48% of annual revenues in 2017. Once again, the region of UK and
North America dominated the rest of the regions in 2017 as far as revenues are concerned.
An opposite trend was observed in
Hornby. This was due to the ongoing Region Wise Sales forHornby Plc (In
impact of insufficient investment in Million)
tooling in the past, coupled with late
placing of purchase orders with Europe (Others)
suppliers. The revenue from UK Italy
declined by 11% . The decline in the UK Spain 2016
revenues was primarily because of one 2017
USA
product “Model Rail” that stood at 38%
of total revenues in 2017. U.S was the UK
only region where revenues increased 0 10 20 30 40 50
(17%) the main increase was in “Slot
Cars” and “Plastic Modelling” that comprised 14% and 11% of total revenues in 2017. The
rest of the regions such as Spain, Italy and rest of the Europe were all subjected to a decline.
The decrease in the region of U.K was critical as it comprised 73% of total revenues in 2016
and 78% in 2017. The decrease in the revenue for Hornby Plc was due to the reduced scale
of the business in line with the turnaround plan.
 Analysis of Cost of Sales & Profitability:

In order to assess the profitability of the two companies we are using both Gross profit
Margin and Net profit Margin. Investors use both ratios to assess a company’s financial
health. <Delen, D., Kuzey, C., & Uyar, A. (2013)>But net profit margins paint a clearer picture of

[3]
the overall expenses compared to revenue. Often, companies find it easier to increase
profits by reducing costs rather than increasing sales.
The gross profit margins of both companies are given in the table below. The gross profit
margins for Hornby were almost the same as in the previous year, however, for Workshop
Plc the margins improved by 4%. Although change in accounting estimates also resulted in
an increased value for Cost of Goods sold, but the impact was around 3%. A new element in
the cost of sales which was not present in 2016 was the discretionary payment made to
employees that stood at almost 6% of total COGS in 2017. This was done to meet the
company’s long term objectives of retaining the employees and keep them motivated. For
Hornby Plc it was interesting to see how the company retained their gross profit margins
despite the massive decrease in their revenues. The reduced COGS were a result of planned
stock reduction of discontinued product line and the closure of concessions as a
distribution channel.
 Net Profits:
As far as the net profit margins are concerned,
Hornby Plc reported a loss of 20.3% in 2017
which was better than 2016 where the loss 2017
stood at 25%. Workshop on the other hand
reported a net profit margin of 19.32% much 200
better than 11.43% last year. The increased net 150
profit margins were due to better management Sales
of COGS (discussed above) and operating 100
Gross Profit
expenses. Workshop Plc witnessed an increase 50
in finance costs, with corresponding increase in Net Profit
other noncurrent liabilities in the balance sheet 0
Hornby Plc Games
suggesting that the company might have taken -50 Workshop
an additional borrowing from the lenders. The Plc
finance income also deteriorated in 2017. This is
primarily because of increased cash balances.
The company might have pulled out short term 2016
investments to meet its strategic objective of
better cash flow management ultimately 120
resulting in the decrease in finance income. 100
However, the decrease was insignificant to 80
Sales
impact the net profit margins negatively. The 60
increased revenues for the year 2017 40 Gross Profit
accompanied increased tax expense. Hornby Plc, 20 Net Profit
on the other hand reduced its overheads by 0
Hornby Plc Games
11%. Sales and marketing costs also decreased -20
Workshop
significantly due to lower spend on T.V Plc
advertising. Admin costs decreased indicating

[4]
structural changes made as a part of turnaround plan. Other operating expenses included
foreign exchange gains and losses and amortization of certain intangible assets also saw a
decline ultimately improving the net profit margins for the year 2017. All of the relevant
ratios associated with the elements discussed above are given in the below table. Asset
turnover ratio, that measures the value of a company’s sales or revenues generated relative
to the value of its assets, is also shown. Asset turn-over ratio was comparatively better for
Workshop Plc as compared to Hornby Plc.

Hornby Plc Workshop Plc

Margins % of Sales 2016 2017 2016 2017

Revenue 100 100 100 100
COGS 60.96 61.73 31.71 27.63
Gross Margin 39.04 38.27 68.29 72.37
SG&A 54.82 51.44 59.04 52.87
Research & Development
Other 7.76 0.73 -5.03 -4.74
Operating Margin -23.54 -13.89 14.28 24.24
Net Int Inc & Other -0.73 -6.16 0.07 0.05
Earnings before Tax Margin -24.27 -20.05 14.35 24.29

Profitability 2016 2017 2016 2017

Net Margin % -24.6 -20.38 11.43 19.32
Asset Turnover (Average) 1.15 1.11 1.72 2.02
Return on Assets % -28.2 -22.7 19.66 38.98
Return on Equity % -42.93 -31.28 25.78 52.67
Return on Invested Capital % -33.41 -26.81 25.65 52.56

Other ratios, associated with earnings or profits, include Return on Assets (which is an
indicator of how profitable a company is relative to its total assets), Return on
Equity (which is a measure of financial performance calculated by dividing net
income by shareholders' equity and is also known as return on Net Assets) and
Return on Invested Capital (Return on invested capital (ROIC) is a calculation used
to assess a company's efficiency at allocating the capital under its control to
profitable investments) <Delen, D., Kuzey, C., & Uyar, A. (2013)>. From the above table we
[5]
can easily see that Workshop Plc out performed Hornby Plc in all aspects. The fact is
mainly due to increased earnings effectively contributing to increased equity. One
contributor to these ratios is the movement in assets. Workshop Plc’s assets
increased in 2017. The increase in inventories and receivables can be linked with
the increase in sales; however, a significant increase in Cash balances was a strong
contributing factor. The above mentioned ratios were predominantly influenced by
increased earnings for both companies.

 Cash flow performance & Liquidity position:

By viewing the statement of cash flows, we can evaluate the cash positions of both entities.
Workshop Group performed exceptionally well as compared to HRN Plc. As we are aware
of the concept “Cash Is King” and because of its’ increasingly widely use in evaluation by
analysts, Cash management becomes of critical importance <SUWARDY, T. (2012). Cash is
King.>. It appears as if HRN’s objective of obtaining a sustainable financial position was
achieved at the expense of adverse cash management which can potentially put the
company in dire straits. For Workshop Group, managing cash is an integral part of entity’s
objectives and long term growth which can be observed as a scintillating aspect if we
compare the performance with HRN Plc.
Since there is no bench mark for operating cash flow ratios, we are considering the ratios
idiosyncratically based on the assumption “the more the better”. The Operating Cash
flows/Sales ratio gives investors an idea of the company's ability to turn sales into
cash<Giacomino, D. E., & Mielke, D. E. (1993)>. HRN’s performance in this facet improved since
the company was able to transform its adverse position to almost break-even whereas
Workshop Group showed improved this ratio by almost 37% evidencing a better
management of operating cash. By comparing the FCF to OPCF ratio we can observe that
workshop group outperformed HRN plc suggesting that Workshop group is in a better
position for potential expansion, acquisitions in a better state to deal with difficult market
conditions. The higher ratio reflects greater financial strength of the company. The Capex
to Sales ratio for both entities suggests that both are investing to sustain their competitive
advantages for a stable growth. Although the ratio declined for both companies, the
decrease was significant for Hornby Plc.

[6]
 HRN Plc Workshop Group
Cash Flow Ratios 2016-03 2017-03 2016-05 2017-05
Operating Cash Flow Growth % YOY 0.04 0.81
Free Cash Flow Growth % YOY 0.06 1.68
Capital Expenditure as a % of Sales 8.18 4.18 10.73 8.12
Free Cash Flow/Sales % -25.86 -4.43 9.8 19.63
Free Cash Flow/Net Income 1.05 0.22 0.86 1.02
Free Cash Flows To Operating Cash Flow 0.00 0.00 0.50 0.70

Next, we are analyzing the ability of

the entities to meet their current Liquidity Ratios for 2017
obligations without raising external 3
debt via liquidity ratios. Through 2.5
these ratios one can measure a 2
company’s ability to pay debt 1.5 Hornby Plc
obligations and its margin of safety 1
Workshop Plc
through calculation of metrics 0.5
including the current ratio and quick 0
ratio <Van Den End, J. W., & Kruidhof, M. Current Ratio Quick Ratio Financial
(2013)>. Leverage

Hornby Plc Workshop Plc

Liquidity/Financial Health 2016-03 2017-03 2016-05 2017-05
Current Ratio 1.88 2.82 2 1.91
Quick Ratio 0.8 1.39 1.4 1.34
Financial Leverage 1.5 1.25 1.31 1.38

We can see that the current ratios for Workshop group were better than Hornby Plc.
However, Workshop Plc’s current ratio declined in 2017 mainly due to increase in its
current tax liabilities due to increased revenue and operating profits in 2017. Another
factor responsible for the declined current ratio was the increase in deferred income in
2017. The companies records deferred income in its balance sheets and the Advanced cash
received against it. This is another explanation for the increase in Cash balances in 2017.

[7]
Another reason for the increased Cash balances in 2017 could be the possible decline in
Relievable Days (Discussed below). However, the total increase in current assets was not so
great as compared to the increase in current liabilities. The current ratio for Hornby Plc
improved mainly due to the payment of their current debt resulting in a decrease in their
current liabilities. Hornby’s quick ratio also improved due to reduced inventories in 2016
as compared to 2017. The quick ratio for Workshop Plc was somewhat stable in both years.
Although the inventory balance decreased in 2017, the decrease was not sufficient enough
to reduce the overall quick ratio. The quick ratio (often regarded as “Acid-test”) removes
subjectivity of inventories’ translation into cash. It assesses the firm’s ability to meet its
current obligation without relying on the sales of goods in warehouse.

 Efficiency Analysis:
Efficiency ratios measure a company's ability to use its assets and manage its liabilities
effectively. The most widely used efficiency ratios are inventory turnover ratio, asset
turnover ratio and receivables turnover ratio. These ratios measure how efficiently a
company uses its assets to generate revenues and its ability to manage those assets <Halkos,
G. E., & Salamouris, D. S. (2004)>. Our calculated efficiency ratios are given in the table below.

 Asset Turnover Ratio

The asset turnover ratio, as discussed above, asset turnover ratio measures a company's
ability to generate revenues from its assets efficiently. The Asset turnover ratio of Hornby
were 1.15 and 1.11 in 2016 & 2017 suggesting that the asset utilization with respect to
sales was over by 15% in 2016 but by 11% in 2017. An opposite trend was observed by
Workshop Plc and the ratios increased from 1.72 to 2.02. Hornby’s ratio changed because
of its movement in total assets, specifically in property plant and equipment. The fact was
evident in the statement of financial position and statement of cash flows that actually
resulted in the increase. Workshop Plc’s ratios changed because of its scintillating increase
in the revenues for the year 2017. The total asset value also increased to an extent, but
revenue increase mostly contributed to the overall ratio increase.
 Working Capital Ratios:
As far as the working capital ratios are concerned, they were somewhat volatile for both
entities. Cash conversion cycles calculates average number of days it takes for a company to
convert its revenues into cash. The payable and inventory days were almost constant for
Hornby Plc but receivable days saw an increase. On the other hand Workshop plc
performed better in this aspect. Although the revenue increased but the correlation with
the receivable days was opposite. The company might have offered early settlement
discounts, and improved the collection over the performance period. The inventory days
were also much better than Hornby Plc signifying that Hornby’s funds are mostly tied up in
the inventories in the form of holding costs, delivery costs etc. The cash conversion cycle

[8]
for Workshop was overall better for Workshop Plc than for Hornby. We can say that
Workshop plc outperformed Hornby in the aspect of efficiency as well.
 Difference between “Days” and “Turnover”:
The main difference between “Days” and “Turnover” ratios is that “Days” mostly refer to
the period the funds are tied the particular aspect such as receivables, payables, inventory.
Whereas Turnover calculates how quickly a business collects cash from receivables or how
fast the company sells its inventory. The basic goal of the management is generally to
increase sales and to reduce turnover. The turnover ratios for Hornby Plc were better than
Workshop in both years. This indicates operational efficiency of the company and the skill
and experience of the staff in carrying out their respective duties. In addition, we have also
calculated Working Capital Cycle as per the below table.

Key Ratios -> Efficiency Ratios Hornby Plc Workshop Plc

Efficiency 2016 2017 2016 2017
Days Sales Outstanding 68.59 75.51 13.55 10.3
Days Inventory 140.16 145.38 78.8 87.56
Payables Period 55.94 53.11 43.99 41.34
Cash Conversion Cycle 152.81 167.79 48.36 56.51
Receivables Turnover 5.32 4.83 26.94 35.44
Inventory Turnover 2.6 2.51 4.63 4.17
Fixed Assets Turnover 6.39 7.37 5.21 7.07
Asset Turnover 1.15 1.11 1.72 2.02

[9]
Du Pont Analysis:
Due Pont Analysis was a technique introduced in the early 1920s to analyze a company’s
performance. DuPont analysis breaks ROE into its constituent components to determine
which of these components is most responsible for changes in ROE. Decomposition of ROE
allows investors to focus their research on the distinct company performance indicators
otherwise cursory evaluation. <Liesz, T. (2002)> Du Pont Analysis is given as follows:
ROE= Net Profit Margin x Asset Turn Over Ratio x Equity Multiplier
1. Net Profit Margin: Determines Operating Efficiency i.e. How a business performed in
terms of income
2. Asset Turnover Ratio: Efficiency measure used to determine how efficiently a firm
deployed its assets to generate revenues.
3. Equity Multiplier: Determines Financial Leverage- i.e. whether the profits were a
result of additional finances obtained or not.
We conducted a Du Pont analysis on both firms in 2017. Calculations are given in the Annex
in the end. We concluded that:
Hornby Plc’s Du-Pont:
ROE= -20.38 x 1.11 x 1.25
Games Workshop Plc’s Du-Pont:
ROE= 19.32 x 2.02 x 1.38

The basic rule for conducting a Du-Pont

Analysis is that the values of Asset Turn over
and NP Margin should be higher and Equity
Multiplier should be lower. According to our
analysis we can see that, Hornby Plc did not
produce any profits, the it would be difficult
to opine on the performance using Du Point.
It would have been better if the companies
were producing positive Net profit Margins.
However, the equity multiplier appears
satisfactory. Workshop Plc’s ratio was
significantly better than Hornby Plc. The Du Pont shows that the major contributor was the
firm’s operational performance in 2017 that resulted in the increased return on Equity. The
asset utilization was also better in 2017 suggesting an overall better performance. The
asset utilization improved from 1.72 to 2.02. The equity multiplier went down, suggesting
that the company reduced some leverage. As the company operates on Zero debt policy, we
can safely assume that the debt considered in Du Pont constitutes the Non-Long term debt.

[10]
Games Workshop Plc meets ideal conditions for Du Pont and would be preferred over
Hornby Plc.

 Funding structure (debt vs equity) of the companies

As far as the funding structures are concerned, we can reasonably conclude that both of the
companies are “Equity Financed” since no Long Term is appearing in the financials of either
company. This gives the companies an advantage to obtain debt financing should a decrease in
capital structure is required and to reduce the tax liabilities. However, the implication will be
different for both entities. Hornby Plc is already reporting Losses, obtaining debt and settling the
interest payments might further deteriorate the net profit margins, however, the situation might be
different for Workshop Plc. Obtaining further debt will not only reduce the companies WACC, but
will also help in reducing the tax payments that were subjected to an increase in 2017. However,
such a decision should be taken after assessing full costs and benefits of the option. We have
assumed that “Other Non-Current Liabilities” do not meet the definition of long term debt since
they are mostly comprised of provisions and other accruals. For Workshop Plc. For Hornby Plc,
Other non-current liabilities most comprises of Deferred Tax liabilities. Hence, based on our
assumption we have assumed 0 values for Long term debts. The ratios that are mainly used are
gearing ratios to evaluate the financial health of a company. Gearing ratio measures, how much a
debt a company owes in relation of equity. Increased gearing ratios indicate increase vulnerability
to downturns in the business cycle. The gearing ratios of both the companies show the financial
stability. The capital structure of Workshop Plc consists of net funds and owners’ equity. The group
manages its capital to safeguard the ability to operate as a going concern and to optimize returns to
shareholders. Workshop Plc’s objective is not to use long term debt to finance the business.
Overdraft facilities will be used to finance the working capital cycle if required.

 SHARE PRICE MOVEMENTS AND INVESTORS RATIOS OVER THE TWO YEAR
PERIOD

There are plenty of investor ratios that can be used to analyze the performance of the firms.
Here, in this case we are using some of the most widely used ratios.

[11]
 Hornby Plc Workshop Plc
Investor Ratios 2016 2017 2016 2017
0.29 0.55 1.92 5.45
Price to Sales Ratio
Price/Earnings - - 16.75 28.2
Price/Cash Flow - - 9.33 19.63
Price/Book 0.70 1.47 4.25 13.72
Earnings Yield % (98.14) (44.91) 5.97 3.55
Enterprise Value/EBIT (1.98) (3.89) 12.83 21.7
Enterprise Value/EBITDA (2.98) (5.99) 7.95 17.14
Dividend Per Share 0 0 0.45 1.4

PE Ratio - Workshop
Price ratios are used to get an idea whether a
stock price is reasonable or not. The use of these
Plc
ratios are mostly intutive but they accompany a
major caveat i.e. these ratios are merely metrics 30
and are only useful once compared with a 25
suitable bench mark, which can be a competitor, 20
industry or past. We have calculated Price- 15
Earning and Price-Sales ratios for Hornby Plc and 10
Workshop Plc. It is necessary for the companies 5
to be in earnings position so that a better picture 0
can be observed. Hornby Plc did not yield any 2016 2017
earnings in its two years hinting an alarming
situation and a cause of concern for the Price To Sales Ratio-2017
investors. Workshop Plc did not disappoint its
investors after the publication of its results in
2017. The company, not just only improved Workshop 5.45
its Price-Earnings ratio, but announced
dividends for its investors as well. The Hornby 0.55
improved ratio is a result of better
operational and financial performance and
Industry 2.5
the massive increase in revenues in the year
2017. We can reasonably say that the earning
position of Workshop Plc was much better than Hornby Plc in 2017 and in 2016. However,
on comparison with the industry average of 23.1, the company’s performance was slightly
better than the industry benchmark but the ratio of 2016 appears to be questionable on
comparison as far as the overall performance is concerned.
<https://www.thebalance.com/financial-ratio-guide-357501>

[12]
  Price-Sales Ratio:
A relatively different measure is Price-Sales ratio which measures how much of the sales a
company will pay per unit. The main usefulness of this ratio is that it relies on Revenues
and not on profits after deductions which are open to manipulation and often produced
deceiving results. Using an industry average of 2.5 we can observe that Workshop
Plc’s Price-Sales ratio was under the industry average but skyrocketed to 5.45 in 2017. The
sudden increase often raises questions, but since the increase of revenue and reserves
appear legit it is safe to assume that the company improved its price to sales ratio in 2017,
primarily due to its increased earnings. <https://www.thebalance.com/financial-
ratio-guide-357501>
 Dividend Per Share
One of the most renowned ratios of investors is the “Dividend per Share”. Mostly investors,
require returns against their investment in the form of dividends. Dividends, give investors
the required confidence on their investments as far as the return is concerned. The ratio is
common in investors that look for quick gains on their principle invested. Since Hornby Plc
did not produce any earning, no dividend was paid. It is unlikely that the company will be
able to pay any dividend soon. However, since the market is not solely composed of
investors requiring dividends, as significant investors aim for capital gains on the disposal
of their investments, using dividends to evaluate a company’s performance might not be
effective if considered in isolation. It is necessary to view dividends, in light of financial
health of the companies for efficacy. Workshop Plc although paid dividends, the fact that
the dividend policy of the company is not stable, should be considered before evaluating
the value of the company. In the current context, we can safely assume that Workshop Plc
would be preferred over Hornby Plc because of its lucrative dividends as evident in the
previous years. However, the chairman has already given the disclaimer on the reliance of
dividends or their growths in the annual report of 2017.
<https://www.thebalance.com/financial-ratio-guide-357501>
o Dividend Yield:
Dividend yield ratio is mostly considered when investor wants to calculate the return in
relation to the earnings of the company. It is obtained by dividend by dividing DPS by EPS.
The dividend yield for Hornby Plc is negative due losses, Workshop performed better as
compared to Hornby Plc however, on comparing it with the industry, it appears as the
company underperformed. The ratio also declined in 2017. The facts can be deciphered
once we view the retention ratios and payout ratios. Although, the earnings increased,
however, the payout ratio was relatively less that resulted in the decrease of dividend yield
ratio in 2017. <https://www.thebalance.com/financial-ratio-guide-357501>
In addition to the above mentioned ratios, we have also calculated the “Growth” as
present in the below table for review.

[13]
 Hornby Plc Workshop Plc
Description 2016 2017 2016 2017
Revenue %
Year over Year -4.09 -14.95 -0.89 33.92
3-Year Average -0.96 -2.75 -4.27 8.58
5-Year Average -2.53 -5.95 -0.82 3.83
10-Year Average 2.37 0.12 0.25 3.74
Operating Income %
Year over Year 2.59 127.3
3-Year Average -7.43 31.65
5-Year Average -0.53 14.9
10-Year Average 14.86 30.94
Net Income %
Year over Year 10.11 126.34
3-Year Average -6.13 56.25
5-Year Average 3.67 15.73
10-Year Average 21.05
EPS %
Year over Year 9.66 125
3-Year Average -6.39 55.57
5-Year Average 3.25 15.19
10-Year Average 20.7

[14]
 35
30
25
Share Price

20
15
10
5
0
Apr-14

Dec-14
Dec-13

Aug-15

Dec-15

Dec-16

Dec-17
Oct-13

Apr-15

Apr-16
Jun-14

Oct-14
Aug-14

Jun-15

Oct-15

Jun-16

Oct-16

Apr-17
Aug-16

Jun-17

Oct-17
Aug-17
Feb-14

Feb-15

Feb-16

Feb-17
Historical Price Workshop Plc

120
100
Share Price

80
60
40
20
0
Dec-13

Apr-14

Aug-14

Dec-14

Apr-15

Dec-15

Apr-16

Dec-16

Apr-17

Dec-17
Oct-13

Jun-14

Oct-14

Jun-15

Oct-15

Jun-16

Oct-16

Jun-17

Oct-17
Aug-15

Aug-16

Aug-17
Feb-14

Feb-15

Feb-16

Feb-17
Historical Share Price of Horn by Plc

Much of our fundamental analysis discussed above can be verified by technical analysis as
per the above mentioned historical prices. We are required to analyze the share price
movements of 2016 and 2017. It is quite clear that Workshop Plc is moving towards its
maturity and considering the overall fluctuations in the share prices, would be an ideal
investment. Horn by Plc suffered a massive drop in Dec-15. The massive was drop a result
of disruptions from new computer and stock management systems and also by China’s
influence on the supplies. Hornby was never able to recover from that. The price stabilized
from 2016 and has remained constant ever since. Workshop Plc on the other hand, after
successfully achieving forward and backward integration with its suppliers and
wholesalers was able to improve its performance. The technological improvement in its
management system proved to be fruitful. The company’s share price has been subjected to
an increase and attracted several investors. The recent expansion in the Middle East and
regions of New Zealand appears to be the most promising markets. The success of the
company has been attributed to the successful market diversification markets which reflect
the successful achievement of its long term objectives.

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Conclusion:
In order to review a potential investment in a company, there are two types of analysis.
First one is Technical analysis which constitutes around 97% of trading worldwide, second
is Fundamental Analysis that comprises of the rest. We were required to analyze the
companies “Hornby Plc” and “Workshop Plc” and recommend which investment will be
able to yield maximum return for an investor.
Our fundamental Analysis of Profitability, Financial Health, Operational performance
shows that Workshop Plc would be more preferred over Hornby Plc. The company’s
reserves are in excellent position. No apparent strategic drift was observed if we compare
the long term objectives of the company with the annual performance. We understand that
Hornby Plc has adopted a turn-around strategy signs of which are evident in the 2 year
performance. However, it would be too soon to conclude if a strategy is likely to work in the
long turn to return the competitive edge back to the company and return it to the point it
was at. The only way, Hornby will be able to perform better is by diversifying to new
markets and new regions. Such a decision is likely to turn the performance around;
however, even then return to the shareholders is likely to get delayed. The company does
not appear to have a dividend policy; hence, even if Hornby does get the attention, it will be
of an investor that is seeking a return in the long term. Workshop Plc would be idea
investment under such circumstances. Although, the company fell short a bit when the
performance was compared with the industry targets, but the technological advancements
and the recent performances of the company suggest that Workshop Plc can become one of
the giants in the industry if the performance is continued. The dividends, although
unstable, are likely to attract more investors. In our opinion, investment should be made in
Workshop Plc. The final decision of the selection depends on the type of investor whether
the investor is risk seeking or risk averse. A risk averse investor would opt would Games
Workshop Plc considering the stability of investment and return in the form of dividends. A
risk seeker might opt for Hornby Plc with the intention to avail capital gains, since the
performance is likely to improve in the short term and will ultimately result in an increased
share price. However, the approach is aggressive and involves a lot of subjectivity.

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