All those dedicated gamers spending even more time in front of consoles, and the casual players who have joined their ranks during lockdown, have been good news for British developers of video games (Simon Duke writes). Business has been booming during the pandemic and this week Frontier Developments, the maker of Elite Dangerous and Jurassic World Evolution, said that it would generate record revenues this year.
Yesterday, there was similarly upbeat message from Team 17, the maker of the Worms franchise. The Wakefield-based company reported bumper results for the first half of the year and, like Frontier, is bullish about its prospects.
Revenues rose by 28 per cent to £39 million in the six months to the end of June thanks to the Covid-19 effect and the launch of three new titles, including a version of its Golf With Your Friends for consoles. Pre-tax profits increased from £10.4 million to £13.3 million over the period, lifting its cash balance from £35.8 million to £50.4 million.
The company acknowledged that consumer behaviour was likely to “normalise” over the second half after the “extraordinary “one-off” circumstances” of the lockdown. Nevertheless, Team 17 still expects revenues and adjusted profits to be ahead of City forecasts.
The business was formed in 1990 by a six-person team that included Debbie Bestwick, its chief executive and largest shareholder. It enjoyed early success and quickly established itself as the dominant supplier of games for the Amiga computer. In 1994, its fortunes were boosted when an 18-year-old school student approached the company’s stand at a trade fair in London’s Earls Court. Andy Davidson had been turned down by a number of publishers, but Team 17 decided to take a punt on his creation, Total Wormage.
A year later, Team 17 launched Worms, an instant hit. The artillery duel involving animated worms has sold more than 75 million copies and, in the words of Ms Bestwick, created “quite a few multimillionaires”. Mr Davidson, who is no longer in the business, still receives royalties.
Ms Bestwick, 50, led a management buyout of Team 17 in 2011 and listed it on Aim two years ago. Since the float, its shares have nearly tripled in value, despite closing down 12p yesterday at 686p. The company is worth £890 million, valuing her stake at £196 million.
Team 17 knows all about reinventing old favourites for the next generation. Its back catalogue accounted for 86 per cent of revenues in the first half. That proportion should fall in the second half. Since the end of June, it has launched two new titles and expects five more before the end of the year.
A fifth of revenues come from games created by its in-house developers. The remainder comes from acting as a publisher for third parties, which give the company a cut of sales. The commissions vary according to how much work it puts into developing the game; bare-bones publishing deals account for only a quarter of third-party revenues games. Ms Bestwick and Mark Crawford, 53, her finance director, liken their role to that of a music producer, turning raw artists into chart-toppers.
Team 17 has a strong pipeline of new games and the industry is likely to be boosted by the launch of the next generation of Xbox and Playstation later in the year. Goodbody, the stockbroker, predicts that annual revenues will rise to at least £80 million from £62 million last year. Its shares trade on a multiple of more than 30 times next year’s predicted earnings. Team 17 is not cheap, but it operates in a sector with solid growth prospects and boasts an experienced management team with skin in the game.
Advice Buy
Why Team 17 is highly rated for a reason — it’s a well run company in a growth sector
Safestore
Not all property companies are having a bad pandemic (Louisa Clarence-Smith writes). Safestore’s occupancy performance in August was better than it has been in any previous year, adding a net 135,000 sq ft. Occupancy in June and July, as the lockdown eased, was also stronger.
People living in small homes or who are moving have continued to need space to store things. Meanwhile, about 40 per cent of Safestore’s occupancy is now from businesses needing secure space to keep materials and equipment.
Founded in 1998 as the owner of three freehold properties in London, Safestore has grown to become the country’s biggest self-storage provider by lettable space, with 159 sites. It has a further 44 stores across Paris, Barcelona, the Netherlands and Belgium. The company was listed in 2007 and entered the FTSE 250 share index in 2015.
Safestore said yesterday that its revenues for the third quarter, at £40.2 million, were 5.2 per cent higher than they had been 12 months earlier. A significant proportion of that growth was from development completions or acquisitions. On a like-for-like basis, revenue grew by 0.3 per cent as income was dragged down by a 7.1 per cent decline in ancillaries, including car parking, pick-up and drop-off services and workshop rentals.
Yesterday’s trading update came with a warning, though. The company said that it expected some “erosion” in the rate of growth in the fourth quarter, as “strong new lets are accompanied by relatively higher levels of initial discounting”.
Liberum analysts believe that the company will be hit by any slowdown in economic activity. “We do not think the business immune to a material slowdown in wider economic activity, particularly as various government stimuli are withdrawn,” they said.
Tempus gave Safestore a “sell” recommendation in June, with the shares at 739½p. They have risen to 786½p since then (although were down 3p, or 0.4 per cent, yesterday). While it has shown resilience and there is a positive outlook for demand, Safestore has a high valuation. It trades at 27 times earnings and yields 2.3 per cent.
Advice Sell
Why Strong trading already reflected in the share price
