Frontier Dev Share News (FDEV)

(Alliance News) - Tuesday's trading update from Frontier Developments PLC was "positive" and should go some way to "rebuilding credibility" of the medium-term margin outlook, an analyst said.

On Tuesday, Frontier Developments issued an improved outlook for full-year adjusted earnings after "pleasing" contributions across its portfolio.

Shares in Frontier Developments rose 4.2% to 276.17 pence in London.

The Cambridge, England-based video games developer and publisher said since the last trading update in April, Frontier's portfolio has performed well, with pleasing contributions from all games.

Creative management simulation titles have performed "particularly well," Frontier said, in part due to a strong publisher sale on leading PC channel Steam from April 1 to 15.

On consoles, Planet Zoo: Console Edition continued to sell well during April following its successful release in March, the company said.

As a result, for the financial year to May 31 Frontier projects revenue of at least GBP85 million.

Its adjusted loss before interest, tax, depreciation and amortisation is now forecast of GBP5 million or better.

In November, Frontier guided to revenue between GBP80 to GBP95 million, and adjusted loss before interest, tax, depreciation and amortisation of around GBP9 million.

In its previous financial year, Frontier delivered GBP104.6 million in revenue alongside an adjusted Ebitda loss of GBP4.6 million.

The better than previously guided performance is based on a higher gross margin percentage from a greater proportion of own-IP revenue, lower operating costs and the gain from the sale of the RollerCoaster Tycoon 3 publishing rights to Atari, Frontier said.

Chief Executive Jonny Watts said: "I am pleased to announce that our expectations for our financial performance in the current financial year have improved following the excellent reception to Planet Zoo's arrival on console and a good ongoing performance from our other CMS titles."

"We look to the future with renewed confidence," he added.

Panmure Gordon said the update is "positive" with revenue higher, the own intellectual property mix "better" and operating expenditure "lower" than consensus expectations.

Led by the recent release of Planet Zoo on console, the CMS titles have been particularly pleasing, the broker said.

More importantly, the broker explained the revenue mix has been skewed to own IP, higher gross margin, whilst opex also appears to have been lower than anticipated following the completion of the organisational review.

Panmure has left its full-year revenue estimate of GBP87 million unchanged. It now predicts an adjusted Ebitda loss of GBP4.8 million, a GBP10 million improvement on its previous forecast.

The broker believes there remains "considerable scope" for continued share price appreciation, though the next step-change in the rating is likely to be contingent on a return to cash generation.

"Today's update, with ongoing performance from the back catalogue, a return to success from own IP and a continued focus on costs should go some way to rebuilding credibility of the medium-term margin outlook," it said.

Panmure reiterated a 'buy' rating on Frontier Developments.

By Jeremy Cutler, Alliance News reporter

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