Sparks -

Frontier Developments (FDEV) delivered a reassuring H125, with results indicating that the turnaround is broadly on track, despite criticism of the latest release, Planet Coaster 2, from the player community. 

Revenue remained flat y-o-y at £47.3m, but with a more sustainable mix than the prior year, driven by the core franchise back catalogue and supplemented by sales from Planet Coaster 2, which contributed 22% to H1 since its launch in November. This was FDEV’s third highest Christmas ever after the peak Covid years. Underlying growth (excluding one-off deals) grew by 19%. Adjusted EBITDA of £4.4m marked a strong £9.3m y-o-y turnaround, reflecting FDEV’s lower cost base from restructuring. Its balance sheet remains strong, with cash of £27.2m  down slightly from £29.5m at year-end. This figure does not yet include cash receipts from the peak December period and, with the full benefits of the cost reduction programme to come through in H2, the company looks well placed to generate cash on a sustainable basis from here. 

The drop-off in shares in late December and January reflected concerns over some negative feedback from the player community relating to Planet Coaster 2 following its November launch and while the title sold well initially post launch, they have dropped-off since then. The company is engaging with the community and implementing fixes / free updates to resolve this, so the success of this process will be important to sustaining the health and revenues from this franchise. While this is clearly not optimal, the company does have good engagement with player community which should assist the process, while the games predecessor Planet Coaster continues to sell well, seeding the ground for future sales.

The company’s recovery trajectory from here will be defined by the company’s success in layering on new titles, while nurturing the company’s existing franchises and loyal customer base. Following the launch of Planet Coaster 2 was the first of a planned schedule three CMS games, with a third Jurassic world game due for release in FY26 and a yet to be titled launch in FY27. With EV/Sales ratio of c0.5x we see limited downside, especially with the re-focusing and cash flow turn around. Clear catalysts for upside are not clear however. On current consensus, it will be a while before the company looks inexpensive on an earning basis, although revenue upside should drop strongly through to earnings. The companies franchise base and strength in CMS should also have strategic value if key shareholders – David Braben and Tencent  wanted to go down this route. In the longer term, there may also be opportunities to consolidate the CMS space once the recovery is better embedded.