After Frontier Developments PLC (AIM:FDEV) slashed its 2022 sales guidance 18%, analysts at Berenberg said they believe the ensuing sell-off, which saw the shares lose almost a third of their value, is “overdone”.


The computer games developer cut sales guidance for the year to end-May 2022 to GBP100-130mln from GBP130-150mln for three reasons: that sales of its second Jurassic World Evolution (JWE) game on PC are building slower than anticipated, that its Elite Dangerous: Odyssey game underperformed expectations, and that expectations for the release of games from its Frontier Foundry label have been pushed back towards the back end of the 2022 financial year.


Berenberg analyst Edward James noted that JWE2 had enjoyed a very strong release on games consoles and much improved critical acclaim compared to the original JWE, and was also the result of “a very congested launch window, which includes the directly competing PC-dominant titles Age of Empires 4 and Football Manager 2022, as well as blockbuster releases including Call of Duty: Vanguard, Battlefield 2042 and Forza Horizon 5”.


Frontier did however keep its year-to-May 2023 guidance unchanged at GBP160-180mln, James noted, with the company still boasting the highest organic growth outlook in Berenberg’s games sector coverage due to its “growing portfolio of high-quality franchises”.


Frontier confirmed it expects the release of F1 Manager in the first quarter of the 2023 financial year and Warhammer Age of Sigmar at some point during 2022 or 2023.


JWE 2 is also expected to benefit from a significant expansion pack pipeline and the release of the Jurassic World Dominion film in June 2022, which is seen boosting JWE 1 also.


“We take a more cautious view and assume Warhammer Age of Sigmar slips into FY 2023, and hence forecast FY 2023 sales of GBP145m, circa 15% below the midpoint of guidance,” the analyst said.


While the investment bank reduced its price target to 2,500p from 3,500p, the rating was kept at ‘buy’ versus the closing price of 1,700p from yesterday.


“JWE 2 is solid and should outperform JWE 1 for several reasons: 1) JWE 2 has a Metacritic score of 81 (versus 71) and player reviews are strong; 2) JWE 2 console sales have outperformed JWE 1’s so far; 3) while JWE 2’s PC sales are weaker than JWE 1’s, the fact that over 400k players have added JWE 2 to their PC Steam wishlist, versus 500k total units sold on PC and console, suggests it is more a result of the congested release schedule than the game itself and that sales should continue to build; and 4) the average playing time is already higher than for JWE 1, illustrative of high engagement because of the deeper gameplay.


“Taken together, in our view, all this shows that JWE 2 is a high quality game that is resonating well with players. As such, we are confident that JWE 2 will still prove to be Frontier’s most successful franchise ever and benefit greatly from content expansions and the movie in 2022.”

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