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Frontier ‘learning lessons’ and cautiously optimistic for 2023


Frontier Developments [AIM:FDEV], the Cambridge-based video game developer published it FY23 Interim Results today (19th January).

There were few surprises in the announcement, as previously reported last week, Frontier was expecting to underperform its previous expectations, on the back of poor December sales and disappointing sales of its F1 Manager 2022 title.

Revenue increased 16% to GBP57.1m and gross profit margins of 63% remained consistent when compared to 1H22. Research and Development costs fell by GBP2.5m to GBP16.1m following amortisation of its leading title, Elite Dangerous: Odyssey during FY22.

Operating profits were up to GBP6.9m – compared to a loss posted in 1H22 of GBP1.3m, but EBITDA was slightly negative as a result of investment in future titles – some through its Foundry third-party publishing platform – and DLC-focussed support for its existing library.


The company remained well capitalised with GBP42.6m in the bank at the end of November, slightly up from GBP38.7m at the end of May, despite the GBP8.8m acquisition of Complex Games in November 2022.

All in all, on the face of it, it wasn’t a bad set of results. However, the management were expecting more, and targeting revenue growth of at least 20% this year. The company was taken aback by the lower-than-expected earnings from F1 Manager 2022 and, in light of the negative economic news, a reduction in sales over the Christmas period.

Jonny Watts, the company’s chief executive said: “During the first half of the financial year our game portfolio performed largely in line with expectations. However, the key December trading period was below expectations and we believe this was partly due to increased player price sensitivity.”

The company was still cautiously optimistic, Watts said Frontier has learned lessons from the release of F1 Manager 2022 and despite the prevailing economic conditions believed: “…it is still possible to surpass last year’s record revenue performance of GBP114m, particularly if one of the upcoming Foundry titles is a conspicuous success. However, given the number of variables and the more challenging economic outlook, the board have set a minimum expectation of delivering revenue of not less than GBP100m in FY23.”

New Releases

The company is pinning a lot of hope on the release of its Warhammer Age of Sigmar real-time strategy game, using IP developed by Games Workshop [LON:GAW] and follow-up motor racing game, F1 Manager 2023.

The statement added: “The board has set its expectations for FY24 revenue growth at 5% above the eventual revenue outcome for FY23, in light of current market and portfolio uncertainties, and the absence of new titles from Foundry releasing in FY24.”

Watts said: “Overall we believe our core strategy remains sound. We have a strong portfolio of good games and a large and talented team of people. We will continue to work together to navigate our challenges and deliver on our opportunities.”

Frontier opened trading today (19th January) at 472.5p and had risen to 500p by lunch. Frontier has offered a -47.8% year-to-date return, a -63.9% one-year return with its shares have ranging between 442.5p and 1,648p over a 52-week period. The company has a market capitalisation on GBP185.5m.

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ShoreCapital, the broker, said in a research note this morning: “We believe [the latest set of results] shows good progress versus H1 FY22, with positive traction across the majority of the group’s titles […] The outlook from management today is unchanged, and now that we have extra information on 1H22 trading, we plan to publish the full impact of the downgrades on our forecasts along with a  review of the valuation shortly.”

Time to recover

ShoreCapital continued: “…The share price is down 51% YTD, and whilst we still have concerns around the third-party division [Foundry] as well as the F1 Manager, there are still over four months of trading left for FDEV and we believe the group has value in its core portfolio, along with a typically strong launch and nurture strategy that has allowed for strong cash accumulation and customer engagement several years post a title’s initial release. That being said, there will be much work to do to restore investors’ confidence, and this is likely to take time.”

Deshe Analytics rate Frontier as a ‘Hold’, commenting: “Frontier Developments plc’s recently released results from Q2 indicate that Frontier Developments plc is performing reasonably well and on par with its peers. It is highly likely that Frontier Developments will be mostly tethered to market performance and sector movements for the near term. Therefore, Frontier Developments plc received an overall score of 72, translating into a ‘Hold’ ranking.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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