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The racing games specialist is off to a strong start on the stock market

Shares in video games developer and publisher Codemasters (CDM:AIM) have raced 35% higher to 270p since joining the stock market on 1 June. We feel the share price could rise
further in the short term as more people become aware of the stock.

Warwickshire-headquartered Codemasters has raised £15m of new growth funds and a further £170m was raised for selling shareholders including management and Reliance Big Entertainment, part of the Indian conglomerate Reliance.

One of the most recognised British games developers with a 30 year track record of producing hit titles, Codemasters specialises in high quality racing games. It currently manages three established franchises, ‘DiRT’, ‘GRID’ and ‘F1’, with a fourth franchise, ‘ONRUSH’, launching this month.

Founded by the Darling family in 1986, Codemasters boasts a loyal fan club of gamers, a balanced racing games portfolio and strong ties to leading car manufacturers and automotive brands.

The company has been successfully turned around by the current management team, led by CEO Frank Sagnier, with sales and adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) having increased year-on-year since 2015.

For the year to March 2018, revenue grew by 27% to £63.6m and adjusted EBITDA shot up almost 90% to over £11.7m.

The new money raised at the AIM flotation will help Codemasters to extend the reach of its existing franchises onto more platforms such as mobile and virtual reality and beef up marketing to reach a wider audience of gamers.

From the launch of ONRUSH onwards, Codemasters will directly supply its new releases to digital retailers and app stores without the need for a third party distributor. This will provide the group with better margins as there are no distribution fees or cost of goods fees from console manufacturers, plus there is no inventory risk.

Codemasters’ IPO share placing was oversubscribed, reflecting investors’ healthy appetite for access to the video games industry. It is one of few bright spots in the wider consumer space, where quoted investment options include Sumo (SUMO:AIM), Frontier Developments (FDEV:AIM), technical services provider Keywords Studios (KWS:AIM) and publisher Team17 (TM17:AIM).

Besides ‘large, technically competent and well capitalised’ competitors, risks flagged in the admission document include reliance on the success of any new titles launched, deterioration
in the popularity of F1 as a sport and the importance of the F1 licence.

The latter was recently renewed until 2021 by new F1 owner Liberty Media but Codemasters says a loss in the future of this exclusive licence ‘could materially adversely affect the business of the group and its trading performance’.


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