Fantasy video games publisher and developer Frontier Developments (FDEV:AIM) said first half operating profits grew 53% to £6.9 million and also reiterated guidance for full year revenues.
However, the shares softened 0.5% to £32.50 on Wednesday, most likely due to profit-taking following an impressive run during the pandemic.
GROWING PROFITABILITY
Revenues grew 15% to £37 million for the six months to 30 November 2020 as indicated in a recent trading statement (13 Jan).
Gross margin grew to 71% from 67% as a greater proportion of revenues came from the company’s own games compared with licensed titles which are less profitable.
Lower average distribution costs including lower digital store commissions helped to propel operating margins to 19% (14%).
The company ended the period with net cash of £35 million, down from £46 million at the previous year end, reflecting £10 million of share purchases for the employee benefit trust and ongoing investments in development projects.
Lower cash also reflected Frontier’s investment in its growing third-party publisher Frontier Foundry which released its first partner title Struggling in August 2020.
STRONG ROSTER
Founder David Braben told Shares that developing new titles is the ‘life blood’ of the video games industry.
Reflecting this, the company said it expected ‘significant’ growth from the existing portfolio alongside contributions from an ‘exciting’ line-up of new games.
This includes two multi-platform releases incorporating major global intellectual property licenses and several Frontier Foundry games.
As previously highlighted the company will delay the release of Elite Dangerous: Odyssey for PlayStation and Xbox into fiscal 2022 while the release on PC remained on schedule for release in the current year.
Full year revenues to 31 May 2021 are expected to be between £90 million and £95 million with the consensus analyst estimate pegged in the middle at £93 million according to data compiled by Refinitiv.
Shore Capital commented: ‘There is a lot going on at Frontier, in our view, and the clear pipeline of game launches, including the two new annual franchises, helps to create a high level of confidence in our near-term forecasts.
‘We see potential upside coming from further development in core portfolio content along with the growing Foundry arm.’
INCREASING CORPORATE ACTIVITY
Gaming has seen increased customer engagement during the pandemic which has led to increased corporate activity including the takeover of racing games specialist Codemasters (CDM:AIM) by US giant Electronic Arts last year.
Swedish video gaming group Embracer today announced it had agreed to buy three gaming companies including U.S.-based Gearbox, the maker of first-person shooter game Borderlands, for up to $2.5 billion in cash and stock.
