Frontier Developments share price takes off on higher revenues forecast

Its UK stock rose 20p or almost nine per cent to 248p on early trading but at one stage in the last seven days had risen from 190p to 251p. Investment bank Panmure Liberum was moved to champion a buy for the Cambridge Science Park company.

Revenue for FY25 is expected to be ahead of expectations at around £90 million (FY24: £89.3m) - not a massive advance in financial terms but a huge morale boost after some tough trading times. The company cites strong performances across its game portfolio.

The better-than-expected revenue performance, further boosted with a gain of £3.5m on the sale of the publishing rights for the Foundry game Stranded: Alien Dawn (which is not accounted for as revenue), will deliver stronger-than-expected profitability in FY25 and a higher-than-expected cash position.

Frontier, which should know, is more upbeat than the range of analysts' expectations for FY25 revenue which are currently £85-£89m.

Frontier is a legend in the games industry and remains a leading independent developer and publisher of video games. It was founded in 1994 by David Braben, co-author of the iconic Elite game.

Frontier uses its proprietary COBRA game development technology to create innovative genre-leading games, primarily for personal computers and video game consoles.

Panmure Liberum says: “Frontier Developments has surprised the market to the upside, with strong H2 trading driving FY revenues +5 per cent ahead of PLe and +3 per cent vs consensus. Importantly, the top line returned to +3 per cent growth YoY in the second half.

“Including the sale of publishing rights to one of the remaining Foundry games for £3.5m, our FY25 EBITDA forecast rises to £7.4m from nil, and our net cash estimate rises by £8.4m to £37.9m. With a new covering analyst, we reprofile our significantly ahead of consensus outer year forecasts, and apply our increased sector WACC of 11 per cent, in-line with the rest of our gaming coverage.

“While this reduces our target price to 400p, upside on the stock remains very high with c75 per cent upside to yesterday’s closing price. Buy.”