Frontier Developments Share Discussion Threads

[culford] 26/12/2016 19:56

PC is having a Steam good winter sale, consistently in the top 5 and often 2nd as now. This is the biggest period of volume sales in the year and to be in this position whilst only discounted by 15% (most games are 33%-67% discounted) is very encouraging. PC is starting its 6th week of full release and it has probably sold 1/2 million games already. Frontier's previous game in this genre, RCT3, sold >10m units. The market is now much bigger and with such a positive reception (reviews >90% positive), it would be surprising if PC did not follow suit. There will also be paid for DLCs to follow as this game is developed over the next 5 or so years. If one took this franchise on its own and assumed, with DLCs, that it generates £30 each over 10m purchasers (core game's price will probably reduce to c£15 in due course), then that is £300m gross, or c£150m net after VAT and distribution costs. That is 50% more than the market value of FDEV, which also has Elite Dangerous (perhaps of similar value over a longer period), £10m in cash, an experienced management team and skilled workforce, the unique Cobra software and many more games to come!! In other words, PC on its own probably warrants a FDEV share price of 450p and the other assets the same again. Not sure what Bamboo thinks of chart now, but this has plenty more upside in 2017 if underlying value is now c900p.

[allstar4eva] 23/12/2016 09:13

Good posts guys. I got in a week or so ago. Merry Christmas to all. Nice quiet bb here...

[hastings] 23/12/2016 08:06

More very interesting thoughts above further highlighting the investment potential.Looks like I'm going to have a visit next month so will hopefully pen something again to tie in with update from FDEV.

[culford] 23/12/2016 01:42

Steam Winter Sale has started and PC has been discounted by 15% and ED by 33%. ED position has been steadily dropping in the top sellers list and it will need the PS4 launch next year and then another DLC to regain momentum. PC is sitting at 4th with the three games above it discounted at between 40% and 67%. Its positive review rating remains above 90% with the main concern being the high computer requirements to run it.
The next 10 days are the highest revenue days of the year for Steam and if PC can remain in the top 10 it bodes very well for immediate revenues and for its sales longevity as it launched over a month ago now and many other games have launched since.

I agree with Makw61 that share price needs to rerate up towards £5 to reflect the new financial reality of its two franchises. Chart may begin to put people off though and wonder what Bamboo thinks now its got to his target?

[makw61] 22/12/2016 11:51

Isa, I agree with the other posters, not too late on this one if you have some money you are prepared to commit for a few years.

I try to ignore the day to day share price movements (always difficult tbh) and focus on what I think the company is worth. The market will nearly always recognise that in time (I've been in here since the IPO, with most of my purchases over the summer once I'd seen some early PC, so I've had to be reasonably patient).

I believe that Culford's £15m is a reasonable estimate of the run-rate profitability of this company (with potential significant upside from further franchises). If I subtract 20% UK corporation tax that gives earnings of £12m. The average PE of the UK stock market over the past 50+ years is 15. That implies a market value of £180m. With 34.1m shares in issue that equates to a share price of £5.28. You might add in a little more for net cash.

Now you may feel £15m is too high, or that the PE multiple is wrong, but my view is that these need to be quite a bit wrong to make this bad value at current levels. Everyone will have (and should have) their own opinion of course.

The bigger picture is that the economics of games developers have improved significantly in recent years. Distribution is moving almost entirely to electronic rather than physical and that includes Xbox/PS4, marketing is increasingly viral/community based, server and bandwidth costs continue to reduce dramatically. In addition, successful franchises are good at monetising expansions/DLC e.g. GTA V, Sims etc. All this is good for profitability and David B seems to run a tight ship in terms of costs, which makes sense as he is the largest shareholder.

If you get chance, read e.g. Take Two Interactive's 10-k to get a feel for some of the trends.

All the best and GLA

[culford] 21/12/2016 21:39

Isa
certainly not too late - 2nd game launched on 17 November and market mow waking up. 2nd game now a success like the first one and short term share value is somewhere above £4. But in January they announce 3rd game which will be illuminating:
1. the game itself will excite further interest
2. punters will understand that revenues could rise by 1/3 and profits double when that is released
3. longer term investors will look at Activision and Electronic Arts and realise how far this company has to go. It has the resources financially and managerially to launch a new game every year now. These games can generate income for 5-10 years and can have a payback of c100% p.a. over that period.
CEO still has 50% and he is developing a FTSE100 games company.

[hastings] 21/12/2016 21:30

Spot on p1nkfish.

[p1nkfish] 21/12/2016 21:12

Wait. Never too late and depending on results, forward look and plans £3 might be a reasonable entry. Very easy money making could soon be gone but doesn't mean there isn't kmore to be made if patient. It's a 3-5 hold unless something screws up along the way.

There could be a pullback too, but doesn't look likely just yet and might not pull back to even these levels.

Good luck everyone.

[isaready] 21/12/2016 19:07

if only I knew about this one. too late for me

[culford] 21/12/2016 15:56

Market makers' spreads are 20p on this so that is widest it can go - lower when you have other market participants involved. Shares moving to a new level along with revenues and profits - my estimate £40-50m revenues and c£15m profit. At a normal small cap valuation these should move to c10x or 450p per share. If the market compares with the large US competitors and begins to understand the medium term growth potential (new game per year on top of only 2 in publication currently) then double this level. Not surprised by movement to date and believe re rating only beginning.

[mark4231] 21/12/2016 15:20

A lot of buying today, including me with a relatively small purchase, but why is there such a huge spread today?

[m4ybe] 20/12/2016 05:35

Looks like next stop £3 to me.

[culford] 19/12/2016 21:16

Thanks Bamboo
Chart looks strong and we have some pretty strong news to come in Jan with trading update/new game
Planet Coaster still up at top of best sellers list a month after launch, 2nd to Astroneer, a game launched a few days ago. Its approval ratings remain high at 93%.


Global Top Sellers
Windows
Sort by
Relevance

Search

ASTRONEER
16 Dec, 2016 £15.74

Planet Coaster
17 Nov, 2016 £29.99

[bamboo2] 19/12/2016 18:00

This hasn't really paused to make much of a flag or pennant at all, before taking off again. Seems in a real hurry, target price 276

[p1nkfish] 18/12/2016 11:56

Thanks bamboo, will drop a line when a close >= 44.5p. I think it could get through that in a quick jump though. It is now tightly held,

[bamboo2] 17/12/2016 14:50

p1nk, I have posted on UBI thread.

culford, thanks for the info on sales. I tend to buy the chart rather than the co, so am reliant on others for this kind of info. I'll post a chart in due course.

[culford] 17/12/2016 12:34

thanks bamboo
december is best selling month for games and planet coaster back up to 2nd in global charts today. its approval rating still >90% and it looks to be a big success for FDEV
meanwhile ED continues to sell steadily prior to its launch on PS$ in Q2 next year
would think the share price, which is where it was a year ago, has a lot further to go in next few months as market wakes up to the step change in revenues and profits from having a second successful game launched

[culford] 17/12/2016 12:22

thanks bamboo
december is best selling month for games and planet coaster back up to 2nd in global charts today. its approval rating still >90% and it looks to be a big success for FDEV
meanwhile ED continues to sell steadily prior to its launch on PS$ in Q2 next year
would think the share price, which is where it was a year ago, has a lot further to go in next few months as market wakes up to the step change in revenues and profits from having a second successful game launched

[p1nkfish] 16/12/2016 23:32

bamboo, would you happen to think UBI could form a flag pole?
I do. Just don't know when.

[bamboo2] 16/12/2016 14:01

hi culford, The flagpole is a term used to describe the particular chart pattern that is currently taking place. Sooner or later, its likely that the flagpole will end its upward move and form a consolidation zone. This zone is the flag or pennant [name depending on the shape it makes between the trendlines] at the top the pole. Flags are more rectangular, while pennants form triangles.

The flag is a short term pattern and can be very useful for determing future direction and target for the share price. Basically, the longer the pole, the greater the potential. Furthermore flagpoles preceeded by a flat base are known to outperform.

There is more info in this link,



edited for typo

[culford] 16/12/2016 02:39

whats a flag pole bamboo?

[bamboo2] 15/12/2016 18:08

Fantastic flag pole building here.

[p1nkfish] 13/12/2016 17:27

And close to Brexit fall-out immune.
VR headset adoption also a big positive.

[culford] 13/12/2016 13:19

Market seems to be waking up to the upside of this company.

Short term we should have three things happen in the next 6 months:
1. A trading update confirming the successful launch of PC and the step change up to a new level of revenues and profits with two games out in the market. As set out before, this is moving from revenues of £20m and broadly break even to revenues of £40m-60m and profits £10-20m.
2. An announcement on the third game to be self published by FDEV. On the basis of their success over many years and their ability to choose just one game from many ideas one can expect this to be of interest.
3. The launch of ED on PS4 in Q2 next year. This will be a combined ED& Horizons title and should thus be priced at c£40. If it is as successful as ED has been on Steam (remember there are 4x as many PS4 users as Steam users), or No Mans Sky was on PS4 this year, one can expect this to sell >1m copies and thus take sales up another step.

Longer term, over the next 5 years, FDEV has written about its wish to follow Activision and Electronic Arts. These two US giants are valued at $25-30bn and trade on 20x-25x forecast earnings. That is some way ahead but illustrates the potential of FDEV which is valued at less than £100m and which is probably trading at less than 5x 2017 earnings. It has £8m cash in the bank, 30 years of successful production history, a unique development software system that others in the industry wish to licence and a clear strategy to deliver great games and considerable shareholder value.

[hastings] 13/12/2016 08:43

Cheers Culford and some very interesting thoughts on numbers from you.

Regarding recruitment, there appears to be plenty of ongoing activity which is good to see.
FDEV was difficult to value on a number of fronts when it first came to market, particularly moving to that pure self-publishing model.

Much of that mist appears to be dissipating though and as things progress further the shares should surely attract a greater interest.

Looking forward to the update next month which should provide us with some further flesh on the bones, whilst I am now in the process of fixing up another visit to the main site in Cambridge.