MIDAS SHARE TIPS: Profit Will Soar at Successful Video Game Company Frontier Developments
Frontier Developments is another very successful video game company. The group went public in 2013 and has grown by leaps and bounds since then, from developing titles for third parties to publishing games in their own right.
Publishing can be tricky. When games flop, losses can be disastrous, but Frontier has proved its mettle, attracting millions of players around the world with games like Jurassic World Evolution, Planet Zoo and Elite Dangerous.
Like Sumo, Frontier is run by its founder, David Braben. Now 57, Braben created his first game while studying Natural Sciences at Cambridge University 39 years ago.
Popular: Frontier has attracted millions of players around the world with games like Jurassic World Evolution, Planet Zoo and Elite Dangerous
Frontier is still based in Cambridge and Braben remains enthusiastic about the industry to this day, believing that games are a creative force, a way to bring people around the world together and a means to build a robust deliver returns to shareholders.
One of those shareholders is Tencent. The Chinese group has an 8.6 percent stake in Frontier and a seat on the board. Braben sees Tencent as a supportive investor that gives Frontier access to the Chinese market. Others may wonder if Tencent’s intentions go further. Maybe they do – or maybe they will over time.
For now, however, an imminent takeover seems unlikely. Tencent has his hands full with Sumo Group, while Braben owns 33 percent of Frontier and has huge ambitions for the company.
Still, this can be a good opportunity to buy stocks.
A recent trade statement caused consternation. When discussing the year to May 31, 2021, Frontier admitted that a newly released sequel to Elite Dangerous – Elite Dangerous: Odyssey – had had teething problems. The group also revealed that a new Formula 1 management game would be released later than expected, following Covid-related issues.
The response from the market was relentless. The stock fell from £32.50 to today’s price of £25.00. Still, Frontier’s long-term outlook remains attractive.
The group is working on solving problems surrounding the new Elite game. Braben even publicly apologized to customers, and sales should recover over time. The Formula 1 game is also likely to do extremely well once launched and a rich pipeline of new games is expected in the coming years.
Analysts are bullish on Frontier, forecasting a 20 percent increase in revenue to £91 million for the 12 months to May 2021, rising to £143 million in the current year. For the past year, a profit of almost £20 million is expected, rising to £33 million in the year to May 2022.
Braben has a strong focus on growth so there are currently no dividends, but payments may follow over time as Frontier has a healthy balance sheet and makes a lot of money.
Midas verdict: Gaming has become a multi-billion dollar industry and Frontier Developments is a leader in the field, with international exposure and reach. Recent glitches are being fixed, the group still has millions of loyal fans and Braben is committed to success. At £25.00, these shares should rise with or without the help of Tencent.
Traded on: TARGET ticker: FDEV Contact: frontier.co.uk or 01223 394 300