MIDAS SHARE TIPS: Profits set to soar at Frontier Developments


MIDAS SHARE TIPS: Profits are set to soar at video games firm Frontier Developments, which boasts legions of loyal fans

Frontier Developments is another highly successful video games company. The group was floated on the stock market in 2013, since when it has grown by leaps and bounds, moving from developing titles for third parties to publishing games in its own right. 

Publishing can be tricky. If games flop, losses can be ruinous, but Frontier has proved its mettle, attracting millions of players across the world with games such as Jurassic World Evolution, Planet Zoo and Elite Dangerous. 

Like Sumo, Frontier is run by its founder, David Braben. Now 57, Braben created his first game while studying Natural Sciences at Cambridge University 39 years ago. 

Popular: Frontier has attracted millions of players across the world with games such as Jurassic World Evolution, Planet Zoo and Elite Dangerous

Frontier is still based in Cambridge and Braben remains enthused by the industry to this day, believing that games are a creative force, a way to bring people together across the globe and a means of delivering robust returns for shareholders. 

One of those shareholders is Tencent. The Chinese group has an 8.6 per cent holding in Frontier and a seat on the board. Braben sees Tencent as a supportive investor that gives Frontier access to the Chinese market. Others may wonder whether Tencent’s intentions go further. Perhaps they do – or perhaps they will in time.

For now, however, an imminent takeover seems unlikely. Tencent has its hands full with Sumo Group, while Braben owns 33 per cent of Frontier and has huge ambitions for the business. 

Even so this may be a good opportunity to buy shares. 

A recent trading statement caused consternation. Discussing the year to May 31, 2021, Frontier admitted that a newly released sequel to Elite Dangerous – Elite Dangerous: Odyssey – had had teething problems. The group also revealed that a new Formula 1 management game would be released later than expected, following Covid-related difficulties. 

Market reaction was unforgiving. The shares slipped from £32.50 to today’s price of £25.00. Yet Frontier’s long-term prospects remain compelling. 

The group is working to resolve issues around the new Elite game. Braben even apologised publicly to customers, and sales should bounce back over time. The Formula 1 game is likely to do extremely well too once it launches and there is a rich pipeline of new games expected over the next few years. 

Analysts are optimistic about Frontier, forecasting a 20 per cent increase in sales to £91million for the 12 months to May 2021, rising to £143million in the current year. Profits of nearly £20million are expected for the year just gone, soaring to £33million in the year to May 2022. 

Braben is highly focused on growth, so there are no dividends at the moment but payments may emerge over time, as Frontier has a healthy balance sheet and makes plenty of money.

Midas verdict: Gaming has become a multi-billion pound industry and Frontier Developments is a leader in the field, with international renown and reach. Recent glitches are being fixed, the group still has millions of loyal fans and Braben is committed to success. At £25.00, these shares should rise, with or without Tencent’s help. 

Traded on: AIM Ticker: FDEV Contact: frontier.co.uk or 01223 394 300 

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