Video games developer Frontier Developments (FDEV:AIM) received a vote of confidence today from broker Berenberg who believes that its latest game Planet Zoo could blow current estimates out of the water and build on the strong sales momentum reported on the 18 June.
The momentum from the strong debut of its third self-published title Jurassic World Evolution followed on from previous gaming hits Elite Dangerous and Planet Coaster.
In June, chief executive officer David Braben said that he was ‘really excited’ about the prospects for the launch of Planet Zoo, which allows gamers to build and manage a ‘truly modern zoo where animal welfare and conservation comes first’.
Today broker Berenberg said that the recent news flow suggests that Planet Zoo, having opened for pre-orders in June and due to launch on 5 November, could materially outperform its prior estimates.
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On 21 August Planet Zoo won ‘Best Simulation Game’ at the largest video-game trade show in Europe, Gamescom. Since opening for pre-orders, Planet Zoo has maintained its position in the top 10 selling games on Steam and is currently the top-selling simulation game on the platform.
MATERIAL UPSIDE TO 2020 ESTIMATES
Berenberg expected Planet Zoo to contribute £25m of revenue in 2020, equivalent to 37% of the revenue delivered by Jurassic World Evolution in 2019. However, having analysed player data and following discussions with management, the broker believes there is now a ‘strong possibility’ that the game will outperform its earlier forecast and deliver £35m to £50m revenue in the fiscal year ending 31 May 2020.
That would translate into group revenue growth of 14% to 34%, and even after factoring in around £2m of additional marketing costs would imply a 27% to 89% increase in earnings before interest and taxes (EBIT) equivalent to £17.1m to £25.5m.
The broker believes that the next catalyst will come when the company reports its results for the year to 31 May 2019, due on 4 September. Despite today's upgrade the shares are trading down 2.8% to 906p.
