I last wrote about video game developer Codemasters Group Holdings (LSE: CDM) back in November when the firm had released its half-year results. Revenue had been shooting up and I thought the stock would make a good long-term hold.
Today’s share price close to 255p represents a rise of just over 40% from the 180p I recorded in November. Meanwhile, I find today’s full-year figures from the firm to be encouraging.
Earnings shoot ahead of expectations
Compared to the previous trading year, revenue lifted by almost 12% and adjusted earnings per share shot up by just over 64%. As can happen with fast-growing businesses, the profits seem to be following previous strong revenue advances. And in a sign that earnings are real, the company moved from a net debt position of nearly £113m six months earlier to a position of net cash on the balance sheet worth just over £18m this time.
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Operational highlights in the period included the release of four new titles and the signing of an agreement with NetEase Inc to publish three of the firm’s “key PC titles” in China. Codemasters also established an Esports partnership with Motorsport Network, “the world’s largest media company dedicated to motorsports.”
Chief executive Frank Sagnier said in the report that profitability is running “ahead of the expectations” set at the time of the firm’s June 2018 IPO. Meanwhile, he thinks the company has set things up well for future performance. He points as evidence to the way the company engaged its “loyal consumer base” during the four recent game launches and the new strategic partnerships with “leading publishers, platform holders and brands” set to help the firm expand its audience.
Strong structural drivers
Sagnier reckons strong structural drivers in the industry should drive the future growth of Codemasters. The evolution of the industry includes an ongoing shift to digital distribution, the building up of the games-as-a-service model, new streaming platforms, and next generation consoles.
Looking forward, the firm has a “strong” schedule of new releases planned for the current trading year to March 2020, aimed at taking advantage of the opportunities emerging in the industry. Meanwhile, City analysts following the firm have pencilled in increases in earnings for the current trading year and for the year to March 2021 in the mid-to-high teens.
The thrust of my argument for investing in the stock back in November was that companies newly listed on the stock market can be well-financed and at their entrepreneurial best. Sometimes new public companies can enjoy a sustained period of growth, and I still believe Codemasters could do well for its shareholders from where we are now.
However, the share-price gains over the past six months or so have raised the valuation a bit. At today’s 255p, the forward-looking price-to-earnings ratio for the trading year to March 2021 sits close to 17. That’s not outrageously high, and I’d still be inclined to pick up a few of the firm’s shares to hold for the long term.
