What’s behind the recent resurgence of London-listed video games makers?

Three have joined AIM over the past ten months and one more is set to list shortly, but what is behind the sudden investment interest in UK video games makers?

UK video games companies used to be rare beasts on the London Stock Exchange, but several floats over the past 12 months or so have changed all that.

Three – Sumo Group PLC (LON:SUMO), Team17 Group PLC (LON:TM17) and Codemasters PLC (LON:CDM) – have joined since this time last year, while Green Man Gaming is set to list on the junior market later this month.

READ: Berenberg presses play on coverage of UK games makers

The likes of Keywords Studios PLC (LON:KWS) and Frontier Developments PLC (LON:FDEV) are considered AIM stalwarts, despite only having floated in the summer of 2013.

Analysts at Berenberg say the resurgence “comes as no surprise”, with gaming spend on the rise in the UK as cash-strapped people look for cheaper ways to entertain themselves, while favourable government initiatives have also encouraged video game development here in the UK.

Half the population (32.4mln) played video games in 2017 and spent an average of £158 on the pastime, meaning the UK games market generated £5.1bn in revenue last year.

Growth shows ‘no sign of stopping’

That’s 15% more than the year before, and Berenberg reckons it is showing “no signs of slowing down”.

One of the key reasons for the rapid growth is cost. According to Berenberg’s research, the average UK gamer plays for around 494 hours a year. When you divide that by £158, the cost per hour of playing is just 30p.

“When this cost is compared versus other forms of entertainment (e.g. cinema, bowling and eating out), which have far higher costs per hour of £5-£10, it is no surprise that the video game industry is beginning to capture more of the UK consumer wallet,” wrote the analysts in a research note.

Favourable policies

The government is also doing its bit to support the growing sector. Games companies in the UK had traditionally been dealt a weaker hand compared to their overseas partners, which had benefited from attractive government incentives.

The UK has started to implement similar schemes now, namely the Video Games Tax Credits (VGTC), which allows companies to claim tax relief on 80% of a game’s development costs.

“The credits have, therefore, become a key selling point of developing games in the UK versus other European countries,” said Berenberg.

“We believe this, alongside favourable consumer dynamics, will continue to benefit investment in the industry.”