I happen to work in this industry so if it would be helpful I could share my thoughts.
The stock is trading on AIM, which is the junior version of the London Stock exchange, this is a suitable market for the company is it is a low cost environment, but also means there will be a greatly reduced number of institutions and analysts looking at it. This could be an opportunity for us to pick up overlooked shares, but could equally mean the shares slump for extended period making it difficult to sell at a value you feel is justified.
It launched on this market back in July this year at 127p per share and has a total of 31,156,892 shares valuing the company at launch about £40m. That value has swung since between a low of £29m and a high of £51m. However, I should point out that valuations on AIM can often be rather illusory as so few shares get traded. I expect at the level of a private individual you could buy a few hundred pounds of shares at most levels, but a larger order my not be filled at those prices.
To compare the valuation of the company to something we can look at the results for their 2013 year which runs from April 2012 to May 2013. Here we see they had total sales of £12m and made a profit (EBITDA) on that of £3.6m, although that figure has been adjusted to remove certain costs around the floatation.
On simple terms then you could say that at the current valuation of £47m the company is able to earn £3.6m, or simplistically, pay for itself in 13 years. This is a fairly average multiple for an average quoted stock. Although much higher than you would pay for a business privately, say if you were buying a local business in your home town.
Again in simple terms I find that a fairly full valuation and feel no need to rush to buy shares. That said I wish I had noticed when the value dropped to just 29m, I would have immediately bought £10k of shares personally if they were there to be had.
However, the important thing to remember here if that Frontier is a business that is changing its business model. They are moving from a company that makes games for other people, to a company that is making their own game, ED. So the above figures are for the old business model, not the new. Albeit the money raised through kickstarter is going through the accounts so is boosting revenue.
When ED is launched, if successful could be a step change for the company, and after seeing the quality of the Alpha, I’m sure it will be. Although I have not taken the time to run any projections on what that might mean for the company in terms of revenues or profits, I don’t think I have the information to do that correctly.
Not that I am giving anyone advice, but if you did buy shares at the current price I hardly think you are doing anything foolish, not if you have faith in ED. That said, I will still be watching for a lower price before taking a position myself. I think I will acquire shares before the games launch, but feel no need to rush, there is plenty of time before then and I can pretty much guarantee that no matter how good the alpha and beta goes, no one in the investment industry will pay much attention until the game launches and actual sales figures emerge. This gives us fans plenty of time to take a leisurely view of how good ED will be, and plenty of time to buy shares if we wanted.
If you wanted to read more about the company its easy to do so here:
http://www.investegate.co.uk/Index.aspx?searchtype=3&words=fdev
