- Gross margin improving
- Smaller EBITDA loss forecast
- Shares up 155% in two months
Having surprised the market a month ago by confirming it would hit its full-year revenue guidance, games video maker Frontier Developments (FDEV:AIM) has done it again with news it would report a smaller loss than previously anticipated.
The shares climbed 4% to 276p, continuing their striking run from a low of 108p just two months ago.
SMALLER-THAN-EXPECTED LOSS
The Cambridge-based firm said in April trading had been in line with its expectations since mid-January with the biggest contributions coming from Jurassic World Evolution 2 and Planet Zoo.
The fantasy games-maker also revealed last month it had sold the publishing rights to RollerCoaster Tycoon 3 to industry peer Atari for $7 million in cash with an up-front payment of $4 million and the balance deferred.
This morning’s update on trading for the full financial year to the end of May said the firm’s portfolio has performed well with ‘pleasing contributions from all games’.
The company made a big marketing push on leading PC channel Steam in the first half of April, while on consoles Planet Zoo continued to sell well last month following its successful release in March.
More pleasing still, thanks to a higher gross margin and the aforementioned $4 million cash inflow, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to be better than previously forecast.
Based on annual revenue of at least £85 million, the company predicts an EBITDA loss of £5 million or less.
ANALYST VIEWS
Shore Capital analyst Katie Cousins, who raised her recommendation to Buy last month, said the latest sales and earnings guidance was above forecasts and the group’s focus on core titles together with cost savings ‘now indicates a much better exit run rate than originally expected’ with break-even EBITDA possible in the coming financial year.
Liberum analyst Caspar Erskine said today's update again illustrates the underlying value of core CMS games in the company's back catalogue.
