Frontier shares spike after third franchise announcement

Frontier Developments (LON: FDEV) has announced today that its third franchise, Jurassic World Evolution, will be released on PC, PS4 and Xbox mid-2018. The confirmation comes after the Group has enjoyed a stellar year so far thanks to the late-2016 releases of its previous franchise.

The strategic release next year will coincide with the first screening of the next chapter in the film franchise Jurassic World: Falling Kingdom, which will be released during the 25th anniversary of the original Jurassic Park film.

Shares have risen sharply this morning with the news, currently trading up around 13%.

Group CEO David Braben said regarding the announcement...

It will be our first self-published title to debut on PC, PlayStation and Xbox simultaneously, and the first to benefit from such a major marketing event as the theatrical release of Jurassic World: Fallen Kingdom."

Liberum released a note this morning regarding the news, saying:

"This [announcement] supports our forecast doubling of revenues in FY19, our short-term target price of 850p, and a longer-term view that the business can scale substantially as new game franchises translate into major cash returns for shareholders."

The game’s announcement trailer was given its world premiere by Microsoft yesterday as part of their preview event at industry show Gamescom in Cologne. The company expects follow-on coverage in the trade press, social media, youtube and support from other partners such as Sony.

Frontier has seen its revenue double in the 5 years to 2016, with consensus expecting 2017 revenue to grow by over 80% from last year. Net profit in 2016 was £1.6m, with 2017 net profit expected to reach £7m.

This has resulted in FDEV trading at a staggering PE ratio of 324x, compared to an industry average of 16x. However, for companies experiencing growth as significant as this, PE multiples are not particularly helpful.