Lockdown boosts UK video games shares to record highs, growing 4x faster than US rivals

Lockdown has helped pushed the biggest video game shares listed on the UK stock market to all-time highs.

Not only have shares in UK-listed Frontier Developments and Codemasters hit new record highs, but they have also grown in value by as much as four times in comparison to their big-name rivals in the US such as Electronic Arts and Activision Blizzard. These are the producers of mega-hits such as FIFA and Call of Duty respectively.

Looking at the last 3 months (covering March 10th to Friday 5th June) reveals the huge contrast in performance between some of the biggest video game shares listed on the London Stock Exchange (UK) and NASDAQ (US):

Company	Stock Exchange	Share Price Growth (3 months)
Frontier Developments	London Stock Exchange	60%
Codemasters	London Stock Exchange	42.04%
Electronic Arts	NASDAQ	14.5%
Activision Blizzard	NASDAQ	14.36%

Clearly, investors into the UK video game stock market are now growing rather fond of the video game sector. But what’s driving this? We take a look into Frontier Developments and Codemasters to give some clues.

Frontier Developments issued a very positive trading update during the second half of May, within it there were promising signs:

• It expects its operating profit to be ‘materially ahead’ of its previous forecast for FY20.
• During May, Planet Zoo, it’s most recent videogame hit 1million sales in less than six months – faster than any of its other previous games released on PC.
• CEO, David Braben noted ‘we believe many of our new players will stay with us for the long-term’ in reference to the positive impact that lockdown has had on the business.

Prior to this, its half-year results released in February revealed continued strong cash balances. A net cash balance of £28.9m, highlighted its a financially stable business that could handle bad times in the market (should they arise).

And looking at its vacancies list – it seems like it is confident mood, with over 25 live job openings!

A quick peek at the other surging UK video game share of Codemasters also gives some positive indicators. Its trading update issued in April noted:

• Adjusted EBITDA (a measure of profit) to be ‘comfortably ahead’ of expectations.
• Digital delivery of games has accelerated greatly – providing higher profit margins than traditional retail and box sales.

Despite the surge in value of UK video game shares, they still remain significantly behind the overall value of their US rivals. However, this could also be a factor in explaining the recent meteoric rise as there is potentially greater opportunity for strong growth. Frontier Developments is currently valued at £755m compared to Activision Blizzard at over $50bn.

For now, it’s 1UP to the UK video game industry and it will be interesting to see how this one plays out (pun intended) in the coming months…