Positive news is starting to once again trickle out from Cambridge-based video game developer, Frontier Developments AIM:FDEV, as it published an upbeat update for the six-month period to end-November.
The developer – creator of games series Elite, RollerCoaster Tycoon, LostWinds, Planet Coaster, Jurassic World Evolution, Planet Zoo and F1 Manager – reported revenues of £47.3m, down some £400,000 year-on-year.
A dramatic turnaround in fortunes
However, Adjusted Earnings came in at £4.4m, a significant 190% turnaround from the negative earnings a year ago. This flowed into the P&L line, with Frontier making a £4.5m profit compared to a £33.3m loss a year ago – a 113% improvement. The games maker also increased cash on hand by over £10m in a year to £27.2m.
Katie Cousins, an analyst for broker, Shore Capital, which has Frontier Development under research, was broadly content with the latest set of numbers. She said: “FDEV has delivered the group’s third highest festive sales performance, surpassed only by the COVID-impacted years (2020/2021). Additionally, the board remains confident in delivering full-year revenue and profitability for FY25F in line with expectations.”
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‘Buy’ recommendation from Shore Capital
Cousins continued: “As the group continues to focus on sustaining profitability and supporting its pipeline of new launches, we would focus on EV/sales multiples and the cash position. As such, we see FDEV trading on an EV/Sales multiple of 0.4x for FY25, and note a healthy cash position which represents 37% of the current market cap. We retain our ‘Buy’ recommendation.”
The company has worked hard to revive its fortunes. In the past year the company cut costs and reorganised the business. Frontier launched two titles last year, F1 Manager and Planet Coaster II, the latter a follow-up sequel to one of Frontier’s most popular titles.
Jonny Watts, Frontier Development’s chief executive said in a statement to the market: “It was great to see Planet Coaster II release in November, the first of three CMS (construction and management strategy) games we scheduled through our strategic reset last year. We are working hard to support and nurture the game as its player community grows […] Our established portfolio of CMS games continues to deliver and, as we begin 2025, I look ahead with excitement to our third Jurassic World game, coming in FY26.”
Frontier Developments lack of new releases
Cousins did sound a note of caution, saying: “With no new games planned for launch in H2 (next is expected to be a third Jurassic World game in FY26F), we would anticipate the second half to be more of an investment period for the pipeline. Therefore, expectations are for a breakeven adjusted EBITDA for FY25.”
She added that Frontier will have to have significant sales from Planet Coaster II if no new titles are scheduled for launch, stating that the broker’s expectations of £92m revenue for the year should be whittled back to around £80m.
Frontier opened the week at 224.12p, up 62.9% over one-year, with shares ranging between 106.56p and 336.31p over a 52-week period. The company has a market cap of £87.1m.
Bridgewise, the AI-powered analyst has a ‘Buy’ rating for Frontier Development. The analyst concluded: “In light of Frontier Developments recent financial performance, the company’s stock appears to be an attractive investment choice in the Entertainment industry. Frontier’s latest financial results position the company in the top 10% of Communication Services companies, highlighted by its strong performance in Net Change in Cash and EBITDA, Lease Adjusted relative to its peers. Strong performance in these two metrics has historically had a positive correlation with Communication Services stocks outperforming industry competitors.”
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Frontier Developments has successfully navigated a challenging period with impressive improvements in profitability, cash position, and market performance. While the company faces some uncertainty in the second half of the year due to the lack of new game releases, its strong track record, healthy financial standing, and upcoming titles, like the third Jurassic World game, provide a solid foundation for future growth.
As investors and analysts watch closely, Frontier’s ability to sustain momentum and manage its game pipeline will be key to maintaining its positive trajectory in the gaming industry.
