Codemasters in pole position on the grid

British video games company Codemasters announced on Thursday that it had extended the terms of its licensing agreement for the Formula One franchise until 2025. The F1 game is one of the company’s cornerstone products and signing an extension to the contract removes a fundamental risk for the business. It is one of the company’s most important products given the prestige the sports franchise provides and the opportunity for yearly game reboots with the start of each new season. More recently, Codemasters have launched an accompanying mobile game and eSports league, furthering the reach of the game.

I have been following this company for over a year since it listed on the London Stock Exchange with an IPO in June 2018.

The contract announcement says the new agreement results in Codemasters paying a higher guarantee to F1, increasing at an annual rate of 12 per cent until the 2025 season.

“In return, Codemasters will receive advertising inventory and marketing support across F1 channels, including via trackside advertising at Grands Prix and a stronger presence on F1’s fast-growing digital channels,” the statement said.

My position in Codies

I was keen on Codemasters after analysing the admission document and paid a premium for shares initially, making purchases at 276p, 232p and 216p as the share price spiked and then fell following the listing. Investors paid 200p in the IPO and it seemed to me that an illiquid market in the stock pushed up the price. I remained loyal and patient, topping up my holding in September and October at 167p and 161p respectively, reducing my average price. In hindsight, more patience after admission would have paid off because my average price came in a little over the IPO price at 212p.

Trading remained thin for a while, until the price climbed as Codemasters issued a positive trading update in April. I took advantage of this to sell some of my holding. My conviction in Codemasters had led to a level of exposure I was uncomfortable with, so I sold a part of my holding at 224p, booking a profit of 5.6 per cent. Not great and I missed the peak as the price hit 256p a few months later in June. Nevertheless, my small profit leaves me with an average price of 181p.

New installment of Grid receives mixed reception

The F1 contract announcement comes on the heels of the Codemasters launch of Grid, a reboot of the TOCA franchise and fourth racing game in the Grid series. It joins both F1 and rally game Dirt 2.0 as part of Codemasters current lineup and also marks an interesting introduction to Google’s new Stadia platform as one of the launch titles.

However, Grid appears to have received mixed reviews and it hasn’t accelerated away in the gaming charts. It hit number five in the UK charts for the week ending 12 October, according to trade body UK Interactive Entertainment. This gave it the highest new entry point in the GfK-compiled chart, but it quickly slipped away in the subsequent week, crashing into 31st position.

Subaru BRZ in Grid game by Codemasters
Subaru BRZ in Grid game by Codemasters

User reviews on the Steam platform are somewhat mixed with a number of positives and negatives. Gamers complained about the difficulty settings, the lack of depth to the game and the progression through career mode. Some said the races were too short and there was poor attention to detail. On the plus side, users described fun online multiplayer play as well as a great AI for the computer-aided competition. Some gamers said the graphics were good with Codemasters having “nailed” the midpoint between arcade racing and simulation.

Grid’s release has also been marred by problems with an update patch causing the Xbox version of the game to stop working altogether. Users on Twitter complained after version 1.1 of the game was rolled out, though Codemasters appeared to resolve the issue within a reasonable time.

Overall, it seems that Grid could have been better, but it demonstrated a solid reboot that hopefully gives Codemasters a firm base from which to build on. Alongside Dirt 2.0, which also recently injected new life into one of the company’s franchises, and the contract renewal for F1, I feel that Codemasters is on a strong footing with three solid racing games spanning different sub-genres.

Bumper year for Codemasters?

A trading update on 9 October outlined a similar performance to the previous year with revenues very slightly up for the six-month period at £39.8 million compared to £39.7 million. Cash was up considerably with £7 million more than in 2018. The F1 game’s release has also been adjusted from August to June, enabling sales to make more of a contribution to H1 earnings, according to the statement from Codemasters.

I would hope given FY2020’s increased roster of releases that momentum from Grid, F1 and Dirt 2.0 would be driven through to H2, resulting in an improvement over FY2019. Revenues hit £71 million with profit of £18.5 million in the last financial year with releases limited to F1 and OnRush.

Gameplay from Dirt 2.0 game by Codemasters
Gameplay from Dirt 2.0 game by Codemasters

Major shareholders have also been more bullish with Reliance Big Entertainment selling more than 14 per cent of the company’s shares in June at 220p, an improvement over the IPO price secured a year before.

I feel somewhat nostalgic about Codemasters having cherished their games during my youth. Nevertheless, as a UK video games company, I like their straight line focus on racing games and recent reboots of the rally and arcade franchises. They’ve made deals with Chinese games developers and are trying to embrace mobile. Management is making a clear push with eSports and is ensuring that it remains engaged on social networks as well as taking opportunity of new gaming platforms like Stadia. Financial management is prudent with good cashflow and limited debt. I intend to remain a long term holder and top up on any share price weakness as long as the company remains on track.

Main photo: Screenshot of Mercedes car from F1 game by Codemasters.


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