Berenberg upgrades Frontier Developments to 'buy'

Analysts at Berenberg upgraded video games business Frontier Developments from 'hold' to 'buy' on Wednesday and hiked their target price on the stock from 300.0p to 330.0p, stating the group's pipeline had now de-risked the equity story.

Berenberg said that with the announcement that Frontier Developments' FY25 creative management simulation title would be Planet Coaster 2 and its FY26 title would be based on the Jurassic World IP, it now believes that the company's equity story has been de-risked.

"Both titles have proven audiences and Frontier has historically been able to generate good returns on these franchises," said Berenberg. "Assuming £30.0m of sales from Planet Coaster 2 and £60.0m of sales from JWE3 would see our FY25 and FY26 revenue forecasts increase by 14% and 36%, respectively. Adjusted EBITDA, which deducts capital expenditure, would increase to £21.0m in FY26."

The German bank added that valuing Frontier on earnings multiples was "challenging", given that it was currently breaking even. Using enterprise value/sales multiples, however, Berenberg said the company trades on a 50% discount to peers. In its bull case, Berenberg expects 100% upside.

Reporting by Iain Gilbert at Sharecast.com