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Driving games specialist is shifting gears with a boost from digital delivery
Thursday 22 Nov 2018 Author: James Crux

Following recent share price weakness, games developer and publisher Codemasters (CDM:AIM) has recovered to 183p, and we think it can maintain this renewed momentum. Notably investment bank Liberum has a 310p price target.

A play on the booming gaming industry, Codemasters’ franchises boast huge fan bases and bags of future revenue upside.

The increased adoption of digital delivery is enhancing margins and the longevity of Codemaster’s back catalogue and a strong Christmas period could turbo-charge current market forecasts.


Debuting on AIM in June, Codemasters has the exclusive licensing rights for the Formula 1 game franchise, while its balanced racing games portfolio also includes three own intellectual property franchises: DiRT, GRID and ONRUSH.

Half year results (13 Nov) revealed a 20% decline in revenue to £39.7m. This looks disappointing but three games were released in the
prior year period versus just two major game releases in the reported period.

Codemasters will benefit from two further launches in the second half, F1 Mobile Racing and DiRT Rally 2.0, whereas there were no new launches released in the comparative period.

Gross margin improved to 88.5% (2018: 83.6%), benefiting from the ongoing shift to digitally downloaded games, which increases the longevity of the back catalogue and the predictability of revenue. Digital channels enable Codemasters to generate additional revenue by offering new content for existing games.

DiRT Rally 2.0 launches next February and the early press reception has been highly positive. F1 2018 launched in August and is the highest rated PS4 racing game of the year; F1 2018 is also at the centre of the F1 ESports series broadcast live on Sky TV and Facebook, which is bringing a new audience to the franchise. The potential loss of the F1 licence is one key risk to consider, albeit this is not something actively on the agenda.


In what could prove a game-changer, Codemasters has entered into a strategic revenue sharing partnership with Chinese internet tech company NetEase, which will be the exclusive publisher for three of Codemasters’ upcoming PC titles within China. Not only will it obtain the necessary Chinese regulatory approvals, NetEase will also invest in marketing and localising the games to accelerate their growth in the world’s biggest gaming market.

Codemasters is growing organically, but will also consider acquisitions and has £16.7m of net cash. All debt was repaid as part of the IPO. Liberum forecasts a rapid acceleration in profit in the coming years. (JC)


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