Frontier Developments Share Discussion Threads

[mortal1ty] 28/11/2023 11:11

The market is forward looking right. So over the next 6 months, the market will be looking what is 6 months out from there.

So to your question, over the next 6 months, I believe investors will start considering what is on the horizon over 6-12 months from now.

We know they have a game release in FY25 (May24 onwards). So that should fall firmly in that 6-12 month window. That game should be a decent content management sim, maybe a Planet Coaster 2 etc.

A low risk game like that will give investors confidence that they aren't facing an immediate flop. It might even push sales back up towards £100m.

Either way, this business should stabilize and start growing again. That pushes the business from 0.5x EV/Sales (distressed) to 1.0x EV/Sales (cheap). That should be enough for a bounce to £3 ish.

[john09] 28/11/2023 10:25

What are the catalysts in the next 6 months?

[mortal1ty] 28/11/2023 10:18

Its down 5p John lol. If it gets to £1 come to me then. I might start to feel some pain down there.

I remember when I first bought this at £10, and then it fell to £8. Then it rose all the way to £27. Didn't feel too good then either, but turned out ok.

[john09] 28/11/2023 10:08

How’s that falling knife feel in the hands mortality?

[mortal1ty] 28/11/2023 09:33

I think that £93m opex number includes number of non-cash charges.

I was working it out a different way, if they make -£9m EBITDA at £95m sales, then at £80m that is a £10m hit to gross profit (which should be covered by their cost cutting). This sort of ties in with their guidance for next year.

To be honest the P&L is a bit all over the place, but in FY23, they made £44m in CFO, and if you strip out acquisition costs, they spent about £41m on CFI (that includes capitalised costs).

So at £104m it was roughly cash positive. Take out £20m sales, that is £12m in gross profit. They should be able to find that in their overheads.

[74tom] 27/11/2023 21:51

Good reasoning in the main, however a big question mark on the breakeven numbers;

"Cash is £20m at 31st October. They burnt through £8m in 5 months that means. 20% of cost out of opex should save c. £20m a year. I believe that effectively should see this business to cash flow neutral on a £85m run-rate"

Gross margin has been ~64% for the last 2 years, so on £85m run rate would deliver £54.5m gross profit.

Opex last year was £93m, so a 20% cut only reduces it to £74.5m.

You've then got capitalised development spend to factor in, which presumably will be material if they are developing 3 new games.

So I don't see how they can be anywhere near cash flow neutral on £85m revenue unless they cut FY23 opex by 40-50%?

Amazing looking at FY20, £76m revenue and an operating profit of £16.6m on opex of just £35m... horrific to add £58m to their annualised cost base and end up in a far worse position.

[mortal1ty] 27/11/2023 16:17

Hi 74tom.

1) Management only need to issue profit warnings if the business is trading materially below 'market expectations'. I suspect market expectations will drop quite a bit today (maybe £85m sales, and -£15m EBITDA). So a profit warning will have to be driven by sales below £80m (and the knock on impact to profit). Management walked away from their -£9m EBITDA guide today.

2) I think pretty much every warning so far has to some extent been driven by a disappointing large release including Odyssey, F1 Manager 22, F1 Manager 23, and now Warhammer. Furthermore, these warnings were supported by disappointing publishing releases. Looking forward, there are no major releases for a while, which gives me some reassurance that there isn't a large £20-£30m in revenue for some major title (like Yank pointed out there was for Warhammer).

3) Cash is £20m at 31st October. They burnt through £8m in 5 months that means. 20% of cost out of opex should save c. £20m a year. I believe that effectively should see this business to cash flow neutral on a £85m run-rate. Cash should end up at year-end maybe towards £14-£15m based on current cash burn vs. opex cuts.

4) Even when the business was doing well this business had massive discounts on games. The idea was to boost DLC's if I remember correctly.

So short-term I don't see too much more bad news, especially given lack of major releases. Mid-term I hope to see some announcements on CMS titles. I will take a view then whether these games might be flops or not. In the mean-time these shares can rise 40% on no news (£1.90 to £2.80 was an example).

Finally on valuation. At £80m sales, with £20m cash, and a £60m market-cap, the business is trading at 0.5x EV/Sales. I struggle to find many businesses on this valuation, which aren't like extremely low margin, commoditised businesses.

According to my screen the valuation is in the bottom 15% in the UK. Hence I believe the valuation has troughed. This is why the shares only dropped 20% today (the same as the sales downgrade), the market already believes the valuation multiple (at 0.5x sales) is low enough.

I owned this from £10->£27, so for me its largely moving back to where I left off.

[lyndley] 27/11/2023 16:08

It's come down from £34 per share in 2021 and now at £1.50. I just don't get it, I mean the company has had a few issues, but many of the games have sold reasonably well, this is just nuts tho.

[sbb1x] 27/11/2023 15:09

Nice buy 89,000 shares.

[john09] 27/11/2023 15:05

Never catch a falling knife and it’s been falling since 260p in the most very recent drop

[74tom] 27/11/2023 14:41

So you've bought £120k worth of shares mortal1ty? Good luck...

There looks to be at least one more profit warning to come based on them maintaining £9m adj EBITDA loss on achieving the upper end of £80-95m range. Does hitting the lower end of the range result in £22m adj EBITDA loss? If so where does cash sit then?

Worth highlighting that all of their historic hits have had their sales prices slashed by 70% on steam over the last week, presumably to try and boost interest. The problem is 70% is such a brutal reduction that it requires a 3x increase in downloads to make the same amount of revenue...

Also Swedbank still have 1.5m shares to dump & I can't see them stopping based on today's update.

No reason this doesn't see £1 or lower IMO.

[kemche] 27/11/2023 13:03

£1 calling.

[mortal1ty] 27/11/2023 09:54

Lets see if management finally dip into their pockets. Not holding out hope.

[mortal1ty] 27/11/2023 09:51

Just bought 0.2% of the company hahaha.

[sbb1x] 27/11/2023 09:49

With only 39 million shares in issue, perfect time for big holders to hoover up stock and bring there average down.

[mortal1ty] 27/11/2023 09:42

I've just finished buying back in.

Think downside is probably limited from here, based on £20m cash (at 31st October), which is now c. 30% of the market-cap.

Plus... the business isn't releasing games in the near-term... which means they can't disappoint with anymore duffs :).

But mainly, getting back into content management sims is what I want to see and have a pipeline for them.

The challenge for me is there are sooo many cheap stocks in the market. I am basically selling cheap stocks to buy extremely cheap stocks.

[74tom] 27/11/2023 09:18

Inevitable warning here today, I still can't believe they spent £23m on realms of ruin, a truly shocking decision.

Impossible to buy with any confidence until we know the year end cash position, 2024 forecast revenues, what the 3 new games are going to be + see evidence of them rightsizing their headcount back to pre 2020 levels. A horror show & I hope SCSW stop pumping them as it's made them look incredibly foolish.

[mortal1ty] 27/11/2023 07:49

Yank was right... 108 to 85m roughly. So thats a solid 23m downgrade.

Sales downgrade 25%. I would say that is about right...

[scepticalinvestor] 27/11/2023 07:16

Condolences for shareholders. 120p open?

[yankhanson] 25/11/2023 21:36

Now we have a week's post-launch data on FDEV's Warhammer Realms of Ruin, we can project the game's earnings.

Gross on all platforms for FY2024: £0.26m max.

That is not a typo. Compare and contrast FDEV's broker forecast £27m, and FDEV's disclosed development and marketing costs £23m.

The projection method is simple. From FDEV's previous new game, F1 Manager 2022, take the FY#1 units on all platforms, 600k, and adjust by the new game's relative performance on player count. 7.7% upon release, then 12.5% sustain, generously assuming player retention is zero and so all counted players are new purchasers. Then multiply by price - £45, averaging highest against freebies and discounts. This method presumes FDEV manages the new game as it did the previous i.e. does not for example switch it to free to play.

[mortal1ty] 24/11/2023 20:31

This is mainly David Brabens fault.

After Planet Zoo and its success he lost the plot in a mad desire to scale.

If he had just spent the last 3 years sorting out Elite, building out DLCs, and creating 1 decent own IP... without doubling headcount the business would be doing so much better.

Instead the CEO just took any project that came their way it seems. Spent capital. Poor returns. Etc etc.

You can't sack Braben lol, he owns a big chunk. At best you have to hope the biz learnt some lessons.

[yankhanson] 24/11/2023 20:28

"Makes you wonder wtf FDEV are thinking."

I will tell you. They are thinking they are the stellar company they describe in their corporate promo e.g. in the latest annual report. They are in delusional denial of the fact every game produced by their "amazingly talented world-class teams" for years now has been a catastrophic flop. The next trading update will, again, blame this latest flop on increased competition, price pressure etc. and anything but the dire product and spectacular mismanagement.

On current trend, this suicidal behaviour will continue until Braben and the rest of management get sacked by the administrators.

[sgtwhisper] 24/11/2023 15:06

I too wonder wtf is going off in that building. Seems to be a bit of a circus run by a clown atm. I can't honestly believe they've done the same thing with Warhammer as they did with F1M. After all the feedback and criticism they have chosen to release another title focused on graphics and audio with absolutely no depth to either game. CEO is showing real signs of greed amd incompetence, churing out 3 AAA titles now, all with hardly anything for customers to sink their teeth into.
A motion for CEO to go needs to be made, he should have been on top of this situation when thousands of us complaint and requested more depth in F1M in 22, to let another unrelated title hit the market with similar concern is mind blowing.
There's a real chance this will drop to all time lows (around 108). Also begs the question, is this being done on purpose? surly not but it's become that moronic it almost feels constructed.