The launch of Google’s (US:GOOG) Stadia gaming platform this month marked for many the beginning of the shift towards video game streaming, instead of buying games in physical form. While the launch has been dogged by complaints over latency issues (delays typically incurred in processing of network data), the shift towards digital sales has been a boon for Codemasters (CDM). The game developer’s title GRID was the only racing game available on the platform at launch, and management expects it to remain so for the rest of the year.
More broadly, digital accounted for 61.7 per cent of total revenues in the six months to September, up from 53.4 per cent last year. This has a knock-on effect on profitability, boosting gross margins by 50 basis points to 89 per cent. Management expects further improvement as digital continues to grow.
Games companies’ sales often rely on hit-or-miss title launches, but Codemasters is attempting to build more reliable sources of income through its “games-as-a-service” strategy, where it continually releases new content for existing titles. It has been trialling this with its offroad racing title Dirt Rally 2.0, and has doubled its 90-day retention level as a result, increasing the average session time by 34 per cent.
House broker Liberum is forecasting adjusted pre-tax profits of £16.9m, giving EPS of 12.7p in the year to March 2020, rising to £20.6m and 14.1p in FY2021.
| CODEMASTERS (CDM) | ||||
| ORD PRICE: | 215p | MARKET VALUE: | £301m | |
| TOUCH: | 213-217p | 12-MONTH HIGH: | 266p | LOW: 158p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 21 | |
| NET ASSET VALUE: | 44p* | NET CASH: | £24.6m | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 39.7 | -7.6 | nil | nil |
| 2019 | 39.8 | 10.6 | 7.30 | nil |
| % change | +0.2 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £30.8m, or 22p a share | ||||
