Lens on three financial companies - VGI, NGI, PNI

Majority of businesses globally are impacted by the covid-19 mayhem. However, the video gaming sector performed decently and shown some resilience during such unprecedented times. Due to the imposed lockdown and implied restrictions on travel, it has increased engagement towards video games and indoor activities. Many of the UK based companies in the business of gaming are performing well during the pandemic with increased revenue growth. The UK gaming sector is identified as the largest across the European continent and covers a significant portion of the video games market globally.

Today, we will share some insights on two video gaming stocks: Frontier Developments PLC (LON: FDEV) and Codemasters Group Holdings Plc (LON: CDM). Let us, deep-dive, into their business model, strategic updates, key brands, financial and operational performance so as to better gauge on the business outlook scenario.

Frontier Developments Plc – Portfolio of famous Games with Higher Demand

Frontier Developments PLC (LON: FDEV) is a software technology company, which is incorporated in the UK and engaged in developing video games and non-game applications for the entertainment sector. Frontier Developments group has over 500 people working and are currently looking to recruit both graduates and experienced candidates to work on their projects on today’s cutting-edge gaming platforms. FDEV has continued to deliver a diverse catalogue of games over three decades, which is enabled by an exclusive cross-platform technology named Cobra.

Updates on Trading Performance for Financial Year 2020 (31st May 2020)

On 8th June 2020, Frontier Developments provided an update on the trading for the fiscal year ending 31st May 2020. The group reported decent finish to the financial year 2020 with reported revenue of around GBP 76 million and expected operating profit (as per IFRS) of approximately GBP 16 million with an operating profit margin of around 21 per cent. The company started its financial year 2021 with strong momentum based on its exciting development, attractive portfolio of titles, published roadmaps and passionate, growing and skilled team. FDEV unveiled Elite Dangerous: Odyssey on 3rd June 2020, which is set to release in the Q1 of the calendar year 2021, a major paid-for update for Elite Dangerous. The company will also release Planet Coaster on Xbox and PlayStation platforms in the financial year 2021.

Financial Performance in the First Half of the financial Year 2020 (30th November 2019)

(Source: Interim Report, Company Website)

For the first half of 2020, the company’s revenue was reported at £32 million, a decrease from the corresponding period of the last year, with all four titles performing well. But the company has increased its revenue from the previous period (H2 FY19: £25 million). The gross profit margin for the first half of 2020 stood at 67 per cent, an increase from the H1 and H2 FY19 of 61 per cent, reflecting increased sales proportion from own-IP games, primarily due to Planet Zoo launch. In H1 FY20, the operating profit was £4.5 million. The earnings per share increased to 9.4 pence in H1 FY20 as compared with the corresponding period of the last year. Cash balances reduced by £6.4 million to £28.9 million as at 30 November 2019, reflecting receipts from the Planet Zoo sales and cash flows timing.

Share Price Performance Analysis

Daily Chart as of 9th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 9th June 2020, shares of Frontier Developments Plc were trading at GBX 1,998.00, before the market close at 2:35 PM GMT+1. Stock's 52 weeks High is GBX 2,120.00 and Low is GBX 829.00. Total outstanding market capitalization as reported on 9th June 2020 (GMT 2:30 PM) was around GBP 766.56 million.

Decent Performance from Major Titles Launched

All four titles of the company are performing well, each supported by the group's strategy of evolving gameplay, free and paid content, price promotions and active community management. In the financial year 2020, all four games will provide material revenue contributions from both base game sales and paid-downloadable content. Since the majority of the company’s revenues are recorded and received in US Dollars, the appreciation of Sterling pound in the fourth quarter of 2019 had a negative effect on revenue earned over the important November 2019 or December 2019 holiday period, which comprised the Return to Jurassic Park pack and the launches of Planet Zoo. Based on fiscal performance to date and estimates to 31 May 2020, the company is well-positioned to deliver IFRS reported operating profit for the financial year 2020 in-line with anticipations. The company can expect consistent growth performance for the shareholders in the coming quarters or years.

Codemasters Group Holdings Plc – Award-Winning Developer Specialising in Racing Games

Codemasters Group Holdings Plc (LON: CDM) is a leisure goods company, which is engaged in the business of developing and publishing of video games. The company has a successful track record of 30-years in producing games and specialises in racing games with high-resolution. The company was incorporated in Southam, Warwickshire and is among the top game developers and publishers in Britain. The group has an employee base of 450 professional and offices located in the UK, Pune and Kuala Lumpur.

Recent Developments

On 4th June 2020, Codemasters Group Holdings announced that it would release Project CARS 3 for Xbox One family and PlayStation®4 in late 2020 summer.

On 1st June 2020, Codemasters Group Holdings announced the signing of the licence agreement for developing and publishing FIA World Rally Championship exclusively with WRC Promoter GmbH starting from the year 2023.

Update on the Trading Performance for the Financial Year 2020 (31st March 2020)

On 7th April 2020, Codemasters Group Holdings provided an update on the trading for the fiscal year ending 31st March 2020. The group’s performance in the second half of the financial year remained strong, with expected revenue of GBP 76 million in FY2020 versus GBP 71.2 million in FY2019. The adjusted EBITDA is expected to be around GBP 18.1 million in the financial year 2020 versus an adjusted EBITDA of 18.7 million in FY2019. The group has gross cash of around GBP 25.5 million as on 31st March 2020 with no debt for the period. Due to the outbreak of covid-19, the sales mix has been affected in the last few weeks for FY2020. CDM has increased its digital delivery shift for higher margins contribution and impacted box sales and traditional retail sales. The group signed a number of agreements in the H2 of the financial year 2020 and is focused on delivering business development initiatives. The group is focused on ensuring the health and safety of its employees and have enabled remote access to support business continuity. The processes and systems are performing well, and the group do not expect any material impact on business performance.

Share Price Performance Analysis

Daily Chart as of 9th June 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On 9th June 2020, shares of Codemasters Group Holdings Plc were trading at GBX 327.50, before the market close at 2:36 PM GMT+1. Stock's 52 weeks High is GBX 357.70 and Low is GBX 190.00. Total outstanding market capitalization stood at around GBP 519.07 million.

Operational Performance Impacted by Associated Risks

The company has reported a decent financial performance in the trading update for the fiscal year 2019. The group has signed a number of agreements in the second half of the financial year 2020 and increased its digital delivery shift for higher margins contribution. The Group relies on copyrights, patents, etc., failure to protect its intellectual property rights could impact its overall business and financial performance. Fluctuation in foreign exchange rates could affect the profitability of the company. Inability to adopt changing technology and new developments could affect the revenue and business growth of the Group. Failure in cybersecurity and a critical data breach could hamper the operations as well as the reputation of the Group. Any change in regulations and government policies could affect the overall business of the company. Adverse economic conditions could affect the overall business and financial performance of Codemasters Group. The company operates through strategic partnerships; any disruption in these partnerships could hamper the growth of the Group and affect its financial performance.

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