Berenberg cuts target price on Frontier Developments

Berenberg said disappointing sales from Warhammer Age of Sigmar: Realms of Ruin had resulted in Frontier Developments downgrading its full-year revenue guidance to between £80.0m and £95.0m. Berenberg expects "tough trading conditions" to continue over the next six months, which is why its estimates sit at the low end of the firm's guided range.

The German bank noted that for it to turn "more positive" about the shares, it will need to see evidence of return on investment improving on its new releases but with the company's next new release not due until FY25, Berenberg thinks "there are few major catalysts" over the next 12 months.

"Frontier believes that it is still possible for the business to reach an 'adjusted EBITDA' (which adds amortisation and deducts development spend) loss of £9.0m, if revenue hits the top end of the range due to higher gross margins from favourable sales mix and cost cuts. Considering we expect the Christmas period and H124 to be a difficult period for indie/'AA' publishers, we cut our forecasts to the bottom end of the guidance range," said Berenberg.

"Given the high degree of operating leverage, this results in an adjusted EBITDA loss of circa £19.0m. Our FY24 net cash estimate falls to £5.7m (from £11.0m). Frontier expects to be adjusted EBITDA breakeven in FY25. We estimate it would need to generate revenues of circa £97.0m for this to be reached."

Reporting by Iain Gilbert at Sharecast.com