Shares in video games group Frontier Developments (FDEV:AIM) firm 5.7% to £10 as the signing of a major global intellectual property (IP) licence to develop and publish an as yet unnamed new game fosters fresh excitement surrounding the stock.

Cambridge-based Frontier, whose investment attractions Shares highlighted in our Under The Bonnet section here, expects a two year development cycle for this unnamed future game, which analysts believe will build on the success of the company’s monster hit, Jurassic World Evolution (JWE).

READ MORE ABOUT FRONTIER DEVELOPMENTS HERE

Frontier Developments doesn’t specify if the new game flagged today is a completely new project or refers to franchise 5 or 6, games previously said to be in the planning stages. The AIM-quoted company is especially good at keeping its sensitive game and launch specifics under wraps until they are revealed to fans and customers.

As finnCap’s (FCAP:AIM) well-informed Lorne Daniel explains, ‘its newsflow is timed for the industry, not the markets’. What we do know is the licence agreement entitles Frontier Developments to develop and publish the game, together with subsequent associated paid downloadable content, worldwide on both PC and console formats, and that development should begin later in calendar 2019.

Frontier’s founder and CEO David Braben, revered in video game circles for his co-authorship of the seminal Elite game, says ‘we are delighted to confirm that one of our future releases will benefit from a major global IP licence.

'We are excited about our existing franchises and our future portfolio. We will continue to love, support and enhance our existing game franchises as we build new ones.’

LINING UP ANOTHER MONSTER HIT?

This is the latest positive development for Tencent-backed Frontier, which has already launched three successful games franchises – Elite Dangerous, Planet Coaster and JWE. The latter, Frontier’s first self-published licenced game, has been its biggest success to date, released in coordination with the movie Jurassic World: Fallen Kingdom.

Daniel says ‘it is interesting that following on from its stunning accomplishment with JWE, another major rights owner has decided to trust Frontier Developments to make a gaming success of its precious IP. We suspect that other leading IP owners will have noted that, and there will be further licensed game franchises in future.’

The finnCap scribe also comments: ‘The yet unnamed fourth franchise, which is an own-IP project, remains on track for launch later this year. In comparison, a licensed game such as this new one has the potential for much higher profile with an existing fanbase, with resulting boost to sales volumes and revenue generation, although there is a royalty impact on margin.

‘It is some way out, however we would anticipate full year 2022 revenue in the region of £120m on the back of this welcome news.’

Liberum Capital explains the two year development cycle ‘would suggest a game launch in the summer onwards of calendar year 2021. There will clearly be a lot of speculation as to the IP. We note it is again a “major global IP” and that the game is likely to be launched on both console and PC.'

The broker guesses the new game could have a similar profile to JWE, ‘although it’s unknown at this stage as to whether it may benefit from a film launch or a similar “IP event”. The timing of this game would suggest it is likely to be Frontier’s sixth or seventh game.

'We know franchise IV will be released this year (it will be own IP) and we await an announcement of franchise V at some point (it is possible that if it is licenced IP we may hear more about the game a year or more before launch).'


Issue Date: 06 Mar 2019