Berenberg raises Frontier Developments stock price target to GBP4.50

Berenberg has raised its price target on Frontier Developments (LON:FDEV) to GBP4.50 from GBP3.30, while maintaining a Buy rating, primarily driven by strong anticipation for the October release of Jurassic World Evolution 3 (JWE3). The firm highlighted positive community feedback and pre-order data for JWE3, along with improved revenue performance in core franchises, noting potential upside from platform deals and a high drop-through rate for the new game. FDEV shares are currently trading at an FY27E EV/EBIT of 12.6x.

Analysis

Berenberg has upgraded its price target for Frontier Developments PLC (LON:FDEV) to GBP4.50 from GBP3.30, reiterating a 'Buy' rating. The revision is primarily driven by anticipation surrounding the October launch of Jurassic World Evolution 3 (JWE3), for which early community feedback and pre-order data are reportedly positive. The analysis highlights that Frontier has integrated lessons from prior launches, which is expected to de-risk the release and presents potential upside to forecasts. This upside is further supported by the possibility of new platform deals and a high projected drop-through rate of approximately 65% for the new title. The price target increase also accounts for improved revenue performance in the company's core franchises and a roll-forward of Berenberg's DCF model. According to the note, Frontier's shares currently trade at an FY27E EV/EBIT multiple of 12.6x, compared to a peer at 10.7x.

Key Decisions for Investors

• Investors should closely monitor the initial sales data and community reception for Jurassic World Evolution 3 following its October launch, as this is the primary catalyst underpinning the revised valuation and potential upside.
• Consider the current valuation of 12.6x FY27E EV/EBIT in the context of its peer comparison to evaluate if the anticipated growth from the new launch is already priced in.
• Beyond the JWE3 launch, it is prudent to track the performance of Frontier's existing core franchises, as their strengthening revenue was a contributing factor to the price target increase and is crucial for sustained long-term value.
• Given the high drop-through rate of 65% and potential for platform deals, any announcements related to post-launch monetization or partnerships for JWE3 could serve as significant short-term catalysts.