Good morning!

It's been a tricky morning for me so far, as my computer is preoccupied with a Windows Update..

Fortunately, I've managed to commandeer a computer (temporarily) from someone else.

Let's see what's on the menu today:

Cheers,

Graham



Frontier Developments (LON:FDEV)

  • Share price: 1485p (+9%)
  • No. of shares: 38.7 million
  • Market cap: £575 million

Trading Statement

A super update from this video games publisher. Not only is it upgrading expectations again, but it has quantified these expectations with numbers (something that is suprisingly rare!)

The Board's expectations for the current financial year have increased as a result of the initial sales performance of Jurassic World Evolution.  Although it's very early in terms of both Frontier's financial year and the life-cycle of Jurassic World Evolution, current Board projections indicate that Frontier could achieve total revenue for the year ending 31 May 2019 towards the upper end of the current market analyst range (of £58 million to £88 million).

Note how wide the range of analyst forecasts was: £58 million - £88 million. That indicates to me a great deal of uncertainty as to how the company might do.

If the company achieves toward the upper end of that range, I would expect a huge increase in the bottom line.

Gross margin is over 70% (the marginal cost of selling an additional video game is low) and the degree of operating leverage remains quite high. This means that additional sales should have a disproportionate impact on profitability.

This stock deserves a high rating, in my view. As I've said many times, I think there are larger and more diversified games publishers who are probably safer bets. But let's not take away from the achievements at Frontier.

Frontier is hoping to become more diversified over time. It currently has three franchises.

CEO comment:

We already have future franchises in different phases of internal development and we will continue to explore other models to accelerate our scale-up.

Activision Blizzard ($ATVI) is currently trading at a forward P/E ratio of 28x, and EV/EBITDA…

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