China-based internet titan Tencent has taken a 9% stake in video games creator and publisher Frontier Developments (FDEV:AIM). This is a potentially transformational tie-up and the share price has responded accordingly, soaring almost 19% to 623.2p.
The strategic investment in Cambridge-based Frontier will ‘accelerate and improve’ the £181.4m cap’s access to the growing and already very significant Chinese market, already proving fertile ground for Planet Coaster, Frontier’s second game franchise.
For the uninitiated, Frontier uses its proprietary 'COBRA' game development technology to create innovative games with a current focus on video game consoles and personal computers.
Tencent, the China-based internet and interactive entertainment colossus likes what it sees and has invested £17.7m in the AIM-listed outfit, subscribing for almost 3.39m new shares at 523.2p for a 9% stake.
TRANSFORMATIONAL TIE-UP
David Braben, founder and CEO of Frontier, best-known for its Elite Dangerous game, comments:
‘Tencent is the market leader in the online games industry in China and operating a premium PC games distribution platform, WeGame. This strategic investment will both help drive our scale up, and improve access and accelerate our growth into the key Chinese market. Tencent will be a powerful partner for Frontier, in what will soon be the world's largest market for entertainment.’
JOINING AN ELITE CLUB
Numis Securities’ David Toms upgrades his price target from 466p to 605p, writing: ‘This is clearly a very positive endorsement from a major global player in the entertainment industry; Tencent has existing holdings in Supercell (Clash of Clans), Riot Games (League of Legends), Epic Games (Unreal game engine, Gears of War) and a broad range of other gaming, internet and entertainment businesses.’
Toms continues: ‘The proceeds will be used by Frontier to augment existing resources and accelerate the scale-up of existing operations and franchises. In addition, the Tencent relationship should support Frontier in capitalising on the large and growing market in China, through local expertise and access to Tencent's distribution capabilities including the WeGame online store.’
Evans also explains that ‘as well as being a games developer and publisher Tencent is also a platform and services company, and is currently updating its gaming platform ‘WeGame’. This is relevant because, as a shareholder, we would expect Tencent to promote and support Frontier in what - over time - could become an important games channel. This should therefore provide Frontier with another route to market, increasing the company’s addressable market.'
