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Berenberg presses play on a host of UK video games makers, including Codemasters and Frontier Developments

The German investment bank says it is “no surprise” UK video games makers are making a comeback given the increased spend on games and “attractive government policies”

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Berenberg has ‘buy’ recommendations on Sumo, Frontier, Team17, and Keyword Studios

The media team at Berenberg have dragged themselves away from their Xboxes and PlayStations to press play on their coverage of a host of UK video games makers.

The analysts kicked off their coverage of Forza Motorsport developer Sumo Group PLC (LON:SUMO) and RollerCoaster Tycoon producer Frontier Developments PLC (LON:FDEV) with ‘buy’ recommendations.

Sumo already knows where around 75% of forward revenues in its core co-development business will come from.

Although in the short term, these are somewhat fixed, Berenberg reckons there is still a good chance that the company can surprise the market on the upside.

“Sumo has the scope to outperform base-case estimates on its royalty revenues should upcoming co-development games deliver unit sales that are broadly in line with prior releases,” wrote the team, headed by Benjamin May, in a research note.

“This, coupled with possible M&A, could mean that Sumo significantly outperforms current 2019 forecasts.”

Alongside their ‘buy’ rating, the analysts put a 205p price target on the stock.

Frontier has serious potential

As for Frontier, May and co call this the “multi-year play”. They expect the company’s current titles, which include Planet Coaster and the new Jurassic World game, to outperform in the near term. The real potential lies further down the line though.

“With Frontier in a position to release at least one new title per year, its capacity to scale its IP portfolio is at an inflection point,” read the note.

“We, therefore, envisage a roadmap for Frontier to have ten franchises by 2023 (from four currently). If it achieves this, EBIT [underlying earnings] could surpass £60mln (more than 3x our FY 2019E forecast).”

The analysts have set a punchy price target too, forecasting the share price to rise to 1,600p over the next 12 months.

Unconvinced by Codemasters' latest release

The third and final developer which Berenberg has initiated on is Codemasters Group Holdings PLC (LON:CDM) – the company behind racing games such as F1 2018 and GRID.

The analysts have a ‘hold’ recommendation on this stock, stating they are unconvinced by its new ONRUSH title and the pure racing focus.

“Despite Codemasters delivering strong revenue growth in recent years, we have some concerns about the success of ONRUSH and the extent to which the racing focus of the company’s titles can lead to future monetisation,” said Berenberg.

“Ultimately, Codemasters is still at a very early stage of its listed life and we look for more clarity in the coming months.”

It reckons shares are worth 215p, just above the 197p they sit at today.

While the ‘hold’ didn’t do much for Codemasters, the ‘buy’ recommendation sent Frontier shares up 9.1% to 1,081p, while Sumo edged up to 163.5p.

Quick facts: Frontier Developments

Price: 2080 GBX

Market: AIM
Market Cap: £809.37 m

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