Cube UK Report (3 Feb 2021) – Brave valuation maintained at #FDEV

Cube UK Report (3 Feb 2021) – Brave valuation maintained at #FDEV

Morning everyone!

The RNS feed is light today, but I’ll quickly check out:

  • Frontier Developments
  • Guild Esports
  • Dev Clever

Frontier Developments

  • Stock data should display here.
Market cap £1,270 million
RNS Interim Results
Writer disclosure No position.

Rhomboid has one of my favourite Twitter accounts for a quick take on morning news.

He wrote today, in relation to FDEV:

“Heroic assumptions required to justify valuation imho…but I’m no sector expert so…”

If you check the archives, you might find a similar theme in my coverage of the company.
Most recently, with the market cap sub-£800 million in June 2020, I wrote:
As stated in my previous coverage of this share, I have no right to comment on it because I have been continuously surprised by its strong performance and its high valuation.

The market cap is up by another 65% since then.

Will this valuation ultimately be justified by company performance? Here are the latest H1 figures:

  • revenue £36.9 million (up 15% vs. H1 last year)
  • operating profit £6.9 million (up 53%)
  • EBITDA £15.5 million (up 42%)
  • operating cash flow £3.1 million (up 63%)

None of this is terrible, but the nearly £1.3 billion valuation weighs heavily on my mind.

Taking the most bearish perspective possible, you could say:

  • revenue growth of 15% is too pedestrian.
  • operating profit is still way too small to justify this market cap
  • EBITDA ignores depreciation and amortisation, which are real costs
  • operating cash flow is so small as to be irrelevant.

But there are plenty of positives in this story, too.

Execution Success

All four major titles have enjoyed millions of unit sales.

These titles have only recently been released onto new platforms (PS/Xbox/Switch) and one of the franchises has a major new release coming “before the end of the current financial year”.

So there is a great deal of scope for an excellent H2 and for next year to also be a year of financial progress.


Lots of juicy snippets in this exception.


All titles continue to perform well, and revenue growth in the second half of the financial year is expected to build on the strong performance achieved in the first half…

Revenue in December, which is typically the biggest month of the year for videogames sales, was stronger than expected, with base game units and paid downloadable content (‘PDLC’) selling well across all four major franchises

Note that today’s H1 numbers do not include December.

Despite the excellent December, revenue expectations for FY 2021 remain in line with expectations of £90 – £95 million.

Checking consensus forecasts, I see that the market is predicting full-year revenue of £93.4 million, EBITDA of £37.5 million, and EBIT (roughly equivalent to operating profit) of £20 million.

The company also has a large cash pile, giving it the flexibility to invest as required and taking a little bit of the heat out of the valuation.

FY 2022 also sounds very interesting:

For FY22 we anticipate significant growth from the continued strong performance of our existing portfolio alongside contributions from an exciting line‐up of new games, including two multi‐platform releases incorporating major global IP licenses and a number of Frontier Foundry titles.

My view

I like the company and I feel a bit silly for watching its share price go up and up and up over the last few years. But at the end of the day, I don’t have the ability to predict how it will generate £800 million, let alone £1.3 billion, of value for shareholders.

It will need many years of progressively greater success to do that. While it does have a great track record, I just don’t have the conviction to be able to predict this level of sucess.


Guild Esports

#1 Ranked EU Fortnite Player Tayson Signed

Another sign of the brave new world we are living in, where top video game players are celebrities and can be “signed” like footballers.

TaySon, from Slovenia, is the reigning No. 1 player in Fortnite’s player ranking in Europe and his addition elevates Guild’s team to the top spot from second place in the region.

He has a huge collection of followers across four social media channels – well done to him!

However, it’s not clear to me how Guild Esports plans to make any money out of this.

Launched in June 2020, Guild’s ambition is to build a culture of excellence, not only with its team of professional athletes, but also around its brand and digital presence. Celebrating and harnessing the diverse and tribal loyalty of sports enthusiasts worldwide, Guild currently fields professional teams across Fortnite, Rocket League, FIFA & Valorant and set to enter several more esports disciplines over the next year.

It looks like its first big monetisation plan is to sell hats and hoodies.

Not a terrible idea, but I can’t fathom how this is worth a market cap of £31 million.


Dev Clever

Trading Statement

This software group reports that revenue in FY October 2020 was in line with expectations.

Why it has taken them so long to report this?

The Company made significant progress in the last financial year, ended 31 October 2020 (“FY 2020”), and achieved accounting revenues of £1.2m, subject to audit, and booking revenues of £2.4m.

So revenues would be double what they are reporting, if it wasn’t for the accounting rules!

And in the current financial year:

The momentum has accelerated since the start of the new financial year (“FY 2021”). Dev Clever’s achieved accounting revenue in Q1 2021 alone was broadly the same as for the entirety of FY 2020. Booking revenues were substantially ahead of management’s expectations and, as a result, the Company expects the rapid acceleration to continue throughout the remainder of FY 2021.  

There is an equity overhang with 50 million warrants at 25p having been granted to another company – the AIM-quoted Asimilar (ASLR).

With 492 million shares already outstanding, the dilution from these warrants being exercised would not be so bad. And would raise £12.5 million for Dev Clever.

It’s also looking to raise £10 million from another investor.

My view – this is at a very early stage in its development. I’m surprised that it is even listed! Revenues were sub-£400k in H1 last year.

Looks more like start-up investing than the usual sort of thing we deal with in this report.



That will do it for today. See you soon!


PS: Do please give me the thumbs up if you’ve found this interesting. It’s great to know that you’ve read it! Cheers.



Wordpress (2)
  • comment-avatar

    Graham, Re Guild Esports, I could well be wrong but in “normal times” aren’t there big events held in big arenas (think the O2 in London) where fans buy tickets to watch competitions between the best players with big prize money? So, rather like us oldies going to see our favourite bands but for the game players amongst the population? Presumably this also opens up additional possibilities for sponsorship. I’m sure this happens and these events sell out so big money sloshing around somewhere.

  • comment-avatar

    In addition to the potential for events mentioned by Laughton, Guild Esports is starting to win corporate sponsorship deals.  I believe it’s other income source is a cut from its players competition wins.  I suspect the business won’t be profitable for a long time, but esports itself is only going to get bigger IMHO.  This is very early days though and there aren’t that many vehicles today to speculate on it directly.

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