Berenberg cuts target price on Frontier Developments

Analysts at Berenberg slashed their target price on software firm Frontier Developments from 2,500.0p to 2,000.0p on Monday following two profit warnings in as many months.

Berenberg noted that Frontier Development's shares had fallen sharply following the warnings and were now trading below pre-pandemic levels, leading it to ask two questions - was Frontier's game portfolio and pipeline more valuable today than it was before Covid-19, and will it be able to execute on the growth opportunities available to it?

The German bank stated despite its recent issues, which were partly due to early operating challenges of the Covid-19 pandemic but more related to poor guidance, it now believes that both were yes, stating the firm had the ingredients for "material future growth".

"Putting Odyssey aside, which was impacted by the initial working challenges of the pandemic and riddled with bugs that are slowly being addressed, Frontier's fall from grace is more an issue of ambitious guidance than loss of development quality, in our view," said Berenberg.

"JWE2 launched on time with very few bugs, achieved high Metacritic and player reviews, and has sold nearly 1.0m units in two months – with a similar sales trajectory to Planet Zoo. The cadence and sell-through of DLC (digital content) expansions across its franchises, driving 14% yoy growth in Planet Zoo sales in its third year for example, also suggests that Frontier maintains control over its development cycle and quality."

Berenberg added that in the last two years, Frontier had "substantially grown" the intrinsic value and potential for growth of its IP portfolio, by adding Jurassic World: Evolution 2, which furthered its relationship with Universal, exclusive rights to PC and console F1 management games, exclusive PC, console and mobile game rights to Warhammer Age of Sigma, and multiple publishing IP via Frontier Foundry.

"It is up to Frontier to execute on these growth drivers, which – despite the recent shortfalls – our discussion above suggests it remains positioned to do so."