Hopes to definitively end the Thargoid threat were dashed as the deployment of Azimuth Biotech (formerly known as Taurus Mining Ventures)’s proprietary Proteus Wave technology failed to achieve its intended objective.
Chief executive and vice president of Azimuth Biotech, Caleb Wycherley was unavailable for comment when approached by The Armchair Trader, as he was lost in hyperspace, but an Azimuth representative issued the following statement: “Humanity’s focus on petty internal conflicts has blinded us to the existential threat of the Thargoids. Their recent horrific attacks should be a wake-up call to the fact that defunding has crippled joint research programme, Aegis’s ability to offer protection. We strongly entreat our founders to come together and channel resources toward Aegis, and particularly into further research.”
So goes the current narrative from Elite Dangerous, Frontier Developments’ AIM:FDEV, landmark IP, a space trading game, which has been running continuously since 1984 – making it one of the world’s longest-running computer game franchises.
Franchise sustainability
Frontier Developments was established in 1994, by David Braben, and built on the back of the first version of Elite, written in partnership with Ian Bell for the BBC Micro and Acorn Electronics computer systems. Braben is also the driving force behind the Raspberry Pi computer. Braben has been called ‘one of the most influential computer game programmers of all time,’ and developed Elite as a Cambridge undergraduate with Bell.
Based in Cambridge, and employing 800 people, Frontier Developments listed in 2013 on AIM and as well as Elite has a large catalogue of computer games, including: RollerCoaster Tycoon, LostWinds, Planet Coaster, Jurassic World Evolution, Planet Zoo and F1 Manager. The company started self-publishing its own games in 2016 and in 2020 started third-party publishing, and has been very active in the third-party space, announcing at Gamescom, an industry show in Cologne, this morning (26th August) that it is to publish Stranded: Alien Dawn by Haemimont Games, The Great War: Western Front by Petroglyph, and; Deliver Us Mars by KeokeN Interactive.The company has also signed a deal with Formula 1 to develop a franchise of simulator games with the motor racing championship.
The company has been a consistent performer. Listing at 159p in July 2013, Frontier Developments opened trading today (26th August) at 1,596p offering a year-to-date return of -10.67% and a one-year return of -42.2% giving the company a market capitalisation of GBP616.6m. Frontier’s shares have ranged between 1,066p and 2,900p over a 52-week period.
Frontier Developments sees record revenues
In its last trading update, full-year F22 to 31st May, published on 14th June, Frontier Developments reported record revenues of GBP114m, a 26% increase year-on-year. The company said EBITDA was in line with expectations of between GBP7m and GBP8m, however Frontier noted this was down from GBP12m as reported in FY21, something that Braben explained was due to one-off investments in new IP, including the titles F1 Manager 2022 due to be released this summer, and Warhammer Age of Sigmar, scheduled for release in FY2023/4.
However, not everything the company touches turns to gold. Braben said that lower than expected customer engagement on Elite Dangerous: Odyssey on PC led Frontier to cancel the title’s expansion to console which Frontier amortised as capitalised intangible asset and booked as a GBP7m loss. The company said that the non-cash accounting adjustment would have no impact on cash flow, cash balances, or adjusted EBITDA, but will reduce operating profit as reported under IFRS for FY22. Consequently, subject to audit, operating profit, as reported under IFRS, would be expected to be in the range of GBP1m to GBP2m after the deduction of the one-off GBP7m Elite Dangerous: Odyssey amortisation charge.
A growth area that the company highlighted was paid downloadable content (PDLC) which allows the company to make more money from customers owning its games by releasing optional paid-for expansion content.
Frontier Developments has built up strong financial resources with cash-in-hand of GBP39m as at end-May 2022, down slightly from 2021 by GBP3m due to investment in game developments and a purchase of shares for the company’s Employee Benefit Trust.
Over the medium term, Braben expects Frontier to continue to grow revenue by around 20% on average per annum, with any annual growth rate variability largely driven by the number and scale of new releases in each year.
Braben said: “We’ve had another year of solid growth. Following its launch in November 2021, our player base for Jurassic World Evolution 2 has continued to expand, as expected. We are now very well set up for the future, with the Dominion expansion and bundles launching today for Jurassic World Evolution 2, and F1 Manager 2022 due later this summer.”
He continued: “The team has done a great job this year, overcoming many challenges and working tirelessly to support our games and our players. Our games label, Frontier Foundry, has performed well too, with Warhammer 40,000: Chaos Gate – Daemonhunters launching right at the end of the financial year and looking good for FY23 too, with further exciting Foundry releases to come.”
Change of captain
June was the last time Braben appeared as chief executive, and just like his creation Wycherley he donned his flight suit and set sail for Infinity and Beyond, stepping down on 10th August. However, Braben was not lost in space, but remained with his hand on the joystick as president and founder. Jonny Watts was promoted to chief executive after 10 years as chief creative officer.
Braben said: “Frontier is very important to me, and I am delighted to be able to pass on my CEO responsibilities to the exceptionally talented Jonny Watts, who I know will do a terrific job. He has the perfect combination of creative leadership and gaming vision to build on the excellent momentum in the business. I am looking forward to my new role at Frontier, and this change enables me to focus on our longer-term strategic opportunities.”
Katie Cousins, an analyst for Shore Cap, which has Frontier Developments under coverage, said: “… Braben has been important in supporting the growth of FDEV, and therefore are pleased to see that [he] will retain his leadership and vision for FDEV’s strategic direction, whilst maintaining and building key relationships within the games industry and the wider digital entertainment sector. The share price is currently trading close to our fair value, so we maintain a ‘Hold’ recommendation.”
Cousins continued: “Overall we believe FDEV has had a disruptive year, with title delays and a disappointing performance from Elite Dangerous: Odyssey resulting in additional amortisation charges and significantly impacting operating profit for FY22F; therefore, we see the success of F1 Manager along with next year’s Warhammer game will be very important in restoring confidence.”
Shore Cap said: “The current share price of 1536p (25th August) is within 10% of our cash-derived fair value and the group trades on a PER of c.31x for FY23F, well above the peer of 24x, despite a comparable three-year EPS CAGR of c.12%, we would suggest better upside elsewhere in the sector.”
Just as it’s an exciting time for players of Elite Dangerous it’s also an exciting time for investors in Frontier Developments – perhaps with a little less chance of being instantly vaporised. Frontier Developments is a stalwart in the games sector but remains one to watch, commanders.
