Frontier Developments Share Discussion Threads

[bulltradept] 22/11/2021 08:28

KWS to view?

[p1nkfish] 22/11/2021 08:12

At this multiple it's hard to avoid a price hammering if they trip up.

[nimbo1] 22/11/2021 08:02

Jwe2 is the same game as 1 just improved - could tell from steam sales haven’t been as high as they hoped and lack of film alongside won’t have helped.

Odyssey was a flop.

So fdev need to get themselves back on form with next release… pressure on

[p1nkfish] 22/11/2021 07:56

It is using poor 0revious sales to project a more positive future, a bit of a gamble.

[bulltradept] 22/11/2021 07:25

Looks like it, although they've missed the word 'from'. out of it.

[scepticalinvestor] 22/11/2021 07:06

Oh dear - profit warning?

[sogoesit] 08/9/2021 18:18

Ok, understood, Adam.

TBH I don't have a feel for how the Foundry part of the business is going to work financially at all. And, in any case, we have little/no information on either business segmental financial performance or games' segmental performance so I'm in the dark for the more detailed view.

Tks for comment on the operational gearing issue.

[adamb1978] 08/9/2021 13:05

Hi Sogoesit

Many thanks for the compliments. I should clarify one comment, which I think came across wrongly looking at your reply.

When I said "R&D spend for FDEV should taper off" I meant that the rate of growth should taper off. On the simplifying assumption that the same amount of engineering time is needed for each game, but only FDEV-developed games, then as there is an increasing amount of 3rd-party games which use FDEV's foundry offering, the proportion of R&D to revenue should decline (or similarly, the growth rate of R&D spend should decrease).

Those 3rd party games will be lower gross margin but, per above, involve lower/no R&D spend...so net them might be similarly profitability.

Operational gearing - you're probably right and the peers which I've looked at have EBITDA margins on average around 40%-45%, so in the same range of FDEV. Profit growth therefore comes from topline growth, and therefore its helpful that they're guiding to £160m - £180m in the year to May-23!

Adam

Adam

[sogoesit] 08/9/2021 11:15

Many thanks Adam for that comprehensive reply. Appreciated.
I hadn't done any recent guesstimates myself but had been working on a rough 45% EPS growth trajectory. For TTM EPS of 53p this would have given me 77p forecast for the current year..coincidentally with yours!
If I value it at a PEG of 1 then my forecast share price in a year is £34.65.

However, on viewing the results today, I don't think my previous assumptions still stand based on lack of margin expansion and the alternating "dull" year which dampens growth and expectations for growth. Thus your P/E 30x caught my attention.

You mention R&D spend but I think in a business like this a reduction in R&D will be unlikely (but that's just a judgement call).
The only area where there may be earnings expansion is operational gearing (or their costs reducing if they get back to "normal" following Covid disruption).

But it doesn't appear to me to be a business where there are any economies of scale as, in my imagination, each Title is produced in a silo and the software is a sunk (capital) cost.
Of course there is always the positive speculative side that a new release Title will be a big hit compared to historical performance and speculation about this, F-1 for example, may provide enhanced valuation perception.

Conclusion, maybe not as low as 20% pa but certainly my 45% pa growth needs revising.

Thanks for your ideas.

[adamb1978] 08/9/2021 10:43

Hi Sogoesit

Market forecasts are £141m and 72.6p EPS for year to May-22. THeir guidance is 130-150m revenue so the top line isnt aggressive, particularly as FDEV have a record of guiding and then beating.

My EPS forecast is 77p - I assume gross margins decline from 70% to 65% due to more 3rd party titles and then trend up opex. (edit: I was at 79p but just added more R&D). At 2700p, thats a PE of 35x which given the growth and returns, I think is fine.

One challenge I have in thinking about how the cost base expands is that with more third party titles, then the R&D spend for FDEV should taper off - it should be linked to growth in their own revenues but I haven't seen estimates for the breakdown of revenue. I don't think my figures are aggressive as I have EBITDA margins of c42% going forward whereas the last two years are a couple % points higher.

I dont see this as doubling in the next 1-2 years, but I think is a solid bet for making say 20% p.a.

Adam

[sogoesit] 08/9/2021 09:59

Hi AdamB1978,
What is your "current year" (1 April 2021 to 31 May 2022?) EPS forecast that gets you to a P/E of 30?

(The trailing P/E is currently 50x on reported EPS of 53p).

[adamb1978] 08/9/2021 09:39

Not being someone who tries to time markets, its difficult for me to comment on the comments above

I would say though that I somewhat agree with the comments about compelling reasons to buy now if you're looking for hyper growth. However the market forecasts for FY22 are very conservative in that they have EBITDA margins dropping to around 37% from 44% in Fy21 which even with more third party titles, seems low to me given that it implies that the incremental turnover from FY21 to Fy22 is possibly only generating around 28% margins. On a more reasonable assumption, they're on a PE of just over 30x for the current year, which doesnt seem crazy given the growth and c.20% ROCE

[scooper72] 08/9/2021 08:08

Hi Bamboo2 - I decided yesterday on the 7th that u mentioned, to take out my capital from my trading holding and just leave the profits from that particular holding invested, as it clearly wasn't pushing through the resistance. I guess the task now is to figure out how far it will retrace before having another go of moving through the high 20s.

[sogoesit] 08/9/2021 08:06

Agreed pinkfish, I think next catalyst for price is from November with release of JW-2.

[adamb1978] 08/9/2021 08:05

Decent results, growth trajoectory continuing. On a PE of around 30x for the current year, which I dont think is crazy given the growth which they're producing. Happy to continue to hold

[p1nkfish] 08/9/2021 07:56

Good luck whatever the decision but I don't see a need to rush to buy at the moment.

[sogoesit] 08/9/2021 07:23

Sooo.. the rhythm continues; a “dull” year past (19% revenue growth) into an exciting year now (43% revenue growt) presaging a dull year (23% revenue growth) for FY23….
Can margins increase or are they stuck at 22%?
Hmmm… predictability or volatility from risk of delivery?

[p1nkfish] 01/9/2021 20:25

A point of balanced indecision.

[scooper72] 01/9/2021 19:46

Cheers bamboo. It seemed to hold its price today. I never quite understand how the volume of shares changing hands makes a difference but at the moment the volume does seem a bit low. Perhaps that picks up once the resistance is broken?

[bamboo2] 01/9/2021 18:46

scooper, price is making another attempt at the overhead resistance.
My guess is that it will push through.

One of my charts says a possible turn coming up Tuesday 7/9/2021

Not sure at this stage how that works with the idea of the figures around this time.
Could be worth watching trend into the start of next week.

[scooper72] 01/9/2021 14:28

Thanks Bamboo2. Starting to wonder if this might be effected by any waves of reaction to the Chinese state's decision to limit under 18s to 3 hrs gaming a week.

[p1nkfish] 31/8/2021 08:34

Chinese crack down is a concern to part of the segment and will have some negative effect.

www.cbsnews.com/amp/news/china-limits-online-gaming-children-3-hours-week/

[bamboo2] 29/8/2021 15:08

Sogo, Tradingview saying 8/9/2021

scooper, price has hit historical resistance approx 2850 and is testing the invh&s neckline and 200sma from above.

The stock price is above rising 50 and 200 smas. I'd be holding right now.
eod close below 2700, would suggest otherwise.
edit, in retrospect eod close below 2660 is more precise.

[sogoesit] 29/8/2021 12:52

Discussion about the Metaverse (but no mention of the games producers!)...



Full Year Results due "Early September 2021"
Last year on 9 September.
Might the rally continue into results day?
(The current rally projected would meet the declining trend line of recent "peaks" for "next peak" at approx. 3010 on my weekly charts. Support is 2130/2300).

[scooper72] 27/8/2021 09:38

Thanks Bamboo2. I've got two separate holdings. One that I just top up when it gets back to low 20s. But the other one I am thinking might be worth taking profits on as the recent high of about 2800p seems lower than the two earlier peaks this year and it might pull back to the recent support level around 2100p. Any words of wisdom on this?