Frontier Developments Share Discussion Threads

[shanklin] 22/7/2018 14:32

Endion

Re your post 2962, you need to deduct 16 2/3 % to get to the price ex VAT, not 20%.

So if the average price including VAT is £45, ex VAT it is £37.50. £37.50 plus 20% equals £45.

Hope this helps. Cheers, Martin

[mark4231] 22/7/2018 10:56

I have an Oculus Rift VR headset and love it. However, I don't see VR becoming mainstream for quite some time - needs an expensive headset, a high end PC and an appropriate game or application to be used with. FDEV will have good experience from the Elite: Dangerous VR integration though to be able to take advantage if it is worth their while in the future.

[endion] 22/7/2018 10:04

Thats interesting hastings, thanks! I hadnt thought that AR would become bigger than VR.

However it could be that it stays niche until the technology becomes more accessible. At the moment it is too expensive for the majority of players and its bulky, a bit awkward. If it were to improve, say intergrating with something like google glass, then I think it could take off. A way into the future yet though.

[hastings] 22/7/2018 08:27

Endion re-VR, I raised this area with them on Friday and the answer was that it is most likely to going remain a niche area. However, they say that AR on the other hand is going to be a really big part of the industry going forward, my impression was that Frontier is already well placed in this area to capitalise.

[dsct] 21/7/2018 23:19

Hi All,

I've had FDEV on my watchlist for a while, and recently checked in to see what's been happening. The 50% drop from the June high (15% drop in July!), on no negative news (from what I can see), appears to be overdone, so thought I'd start DYOR.

Rather than reading the near-3,000 posts on here, thought I'd start with those from just before the 3/7/18 Trading Statement. Only 300+ posts to read, and wrongly presumed I could scan through most, concentrating on the informative ones - HOW wrong ! Great to see a board crammed with info, and what seems to be diligent posters with reasoned debates.

All these new-fangled games are out of my league, but had a memory-jog when Elite for ZX Spectrum came up ! Those were the days !

I've still to go through the Annual Report, and do some number crunching, although I presume these have been minutely disected on here already.

Initial notes are (I'll most probably be corrected!):

Pro's:
Not a start-up, by any stretch if I can remember their early (Elite) games !
Founder(s?) still in control
Expertise and appear well respected in field - Tie-ups with huge companies etc.
Initial JWE sales impressive
High margin
(Small?) ongoing revenue from previous titles
2 new franchise announcements to come - speculation over what these will be
Low PEG (Need to confirm ADVFN's 0.12 figure, but looks correct if other figures are)
VR future - I've been reading up about VR recently, and can see this being a major addition/expansion to console games.
See some posters I recognise - Not sure if that should be listed below, under the Con's section ! lol

Con's:
High PE (50+), but I'm not too worried as long as the company can justify it.
Reliant on few products - but that should change - similar scenario to one of my recent investments.
Momentum going the wrong way at present
errr ... that's about it for Con's !

Unless I'm spooked by something during DYOR, I'd imagine taking an opening stake next week - so you can expect game (groan!) changing news that morning, with the price opening >£20 !

Thanks again for all the useful posts :o)

[discodave4] 21/7/2018 22:00

Average salary £29k

[p1nkfish] 21/7/2018 20:28

312 in 2017.
At least 329 accounted for now.
Probably closer to 450.

[endion] 21/7/2018 19:34

There are 329 Frontier employees on Linkedin, so at least that. Not sure on full numbers though, likely around 350 - 400.

[adamb1978] 21/7/2018 19:22

Does anyone know how many employees they currently have? Trying to get a view on opex, which will predominantly be people
Thanks

[endion] 21/7/2018 18:51

As an alternative explanation for the recent share price drop, Instituional Investors own 39.27% of the stock. This is lifted from an article on Simply Wall Street:

Institutions account for 39.27% of FDEV’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. However, as not all institutions are alike, such high volatility events, especially in the short-term, have been more frequently linked to active market participants like hedge funds. Hedge funds, considered active investors, hold a 8.46% stake in the company, which may be the cause of high short-term volatility in the stock price.

[p1nkfish] 21/7/2018 14:48

Hydrus, you have no evidence there isn't.

Just total up moves down Last week on AIM350 vs moves up. Then you have a # no worse than taking the index as the indicator and that gives you the idea.

Good look index investing going forward.

[endion] 21/7/2018 14:45

My website saw over double the amount of visitors on Friday compared to it's previous all time high. For better or worse the current share price movement and trading updates seem to have attracted attention.

[allstar4eva] 21/7/2018 14:38

Yep - we don't really know however I suspect they are simply being extremely conservative.

[endion] 21/7/2018 14:23

I see no reason personally for an increase in percentage of royalties if revenue increases. Obviously, if revenue increases, so does the amount they pay Universal, but the percentage would stay the same.

They could have set a contract for 5% under 1 million, 10% between 1-5 million, and 15% above this. But I imagine a steady 10 - 15% license fee would be more likely.

[allstar4eva] 21/7/2018 14:16

2019. They suggested that as sales rise so would cost of sales (distribution) and royalty payments however the ratio of 30% increase in sales for 8% increase in EPS seems very low and I would hope that ratio is not expected to be maintained as sales rise.

[hydrus] 21/7/2018 14:14

Pinkfish I'll conclude you can't share evidence of any risk off in small caps and therefore the statement was baseless. Nothing to be gained from continuing the debate so I'll leave it now.

[endion] 21/7/2018 13:46

An IP license is usually between 10 - 15%. Was the target revenue for yr 2018 or 2019?

[allstar4eva] 21/7/2018 13:39

The broker note seemed to suggest that increased sales = increased royalties. I guess only the company are aware of the exact licensing fees however if they are bullish as inferred from Hastings' feedback from the opening day then we should be too!

With the broker forecasting only 1.65m unit sales we appear on course to smash that.

[allstar4eva] 21/7/2018 13:18

Hi Endion thanks for the calcs. The problem we have though is the licence fee. Surely we are guessing? As mentioned one broker upped their revenue target by 30% but pre-tax by only 8% following a recent trading statement so why was profitability predicted to increase (proportionally) by less than revenue?

[endion] 21/7/2018 12:53

I have done some more calculations that are far more conservative than my previous ones. It may help re-assure those who do not like estimates too far beyond what the market have predicted.

Given the current speed of sales, JWE has sold at twice the speed of Planet Coaster. Planet Coaster achieved 500,000 in 5 weeks vs JWE's 1 million. Using the markets own basis of using Planet Coaster sales to predict JWE sales, then Planet Coaster sold 1.4 million in the first year. At double that rate, JWE would sell 2.8 million.

£45 basic cost of unit (average will higher due to deluxe versions but I am being purposefully conservative here).

45 x 2,800,000 = £126,000,000

Minus 20% VAT = £100,800,000

Minus 30% steam/digital store charge = £70,560,000

Minus Universal License fee 10% = £63,504,000

Minus Tax (after deductions) 15% = £53,978,400

Minus company operating costs, historically has been 30m, I will increase this to 35m = £18,978,400

Profit from JWE would, on this basis be £18,978,400.

Adding to this revenue from previous games and royalties on back catalogue. Previous year revenue has been 22m (2015), 21m (2016), 37m (2017), and now 34m for 2018. In 2019, a conservative estimate for other revenue aside from JWE would be 30m (assuming a slowing of sales of Elite and PC, which is speculation).

So,

Minus tax of 15% this gives = £25,500,000

Profit from JWE, £18,978,400.

Profit from back catalogue: £25,500,000.

Total profit: £43,978,400.

This does not include future dlc.

Earning per Share:

43,978,400 / 38,741,068 (outstanding shares) = £1.14

PE Ratio

This is contentious. The current PE ratio according to Morning Star is 68. This seems high so I shall provide lower example.

With PE of 40 share price = £45.60

PE of 25 share price = £28.5

All of these calculations were done with conservative estimates based in my own research, using JWE sales of 2.8 million. I anticipate that figure to be nearer to 4m.

[p1nkfish] 20/7/2018 22:00

Index value doesn't carry all the necessary information.
Be very careful thinking market cap weighting does.

Do you have details of index leadership in AIM?
In other words market breadth over time?
That is what I would look at to determine the Index health.

In my experience small cap UK is risk off currently.

[hydrus] 20/7/2018 21:23

Don't quite understand your answer. Sounds a bit like you're saying because your portfolio has been affected, you've extrapolated that to conclude that UK small caps are risk off. There is just no evidence for that at all. Sorry to be a nitpick but best to be factual I think rather than make sweeping statements that aren't true.