A hot sector still surging, plus some FTSE dividend cheer

by Graeme Evans from interactive investor |

Lockdown has given these tech stocks a massive boost, and investors continue to chase them higher.

Video gaming continues to be one of the hottest stock market sectors after AIM-listed Frontier Developments (LSE:FDEV) today surged to a record high on the back of lockdown-driven demand.

The developer of games including Jurassic World Evolution and the recently-launched Planet Zoo, said a strong finish to its financial year meant profits will be materially ahead of its previous guidance range of between £11 million and £13 million.

Shares jumped 15% to 1,894p, beating the previous high set two years ago and putting the £650 million market cap stock on a lofty price/earnings (PE) ratio of around 120 times. The stock is not the only video gaming firm to see a big jump in its share price since the coronavirus pandemic, with Keywords Studios (LSE:KWS) up by a third since mid-March amid a further 5% improvement today.

Codemasters (LSE:CDM) and Sumo Group (LSE:SUMO) have also been trading at record highs in recent days, with Team17 (LSE:TM17) the other stock in the sector much higher than its price in March.

Source: TradingView. Past performance is not a guide to future performance.

The industry has clearly benefited from the advice to stay at home, but that should not mask some of the longer-term trends boosting sentiment before the pandemic struck.

Immersive experiences and the opportunity for gamers to interact has transformed the sector in the past decade, with streaming by the likes of Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) set to be the next big opportunity. China is also an important market, particularly for Frontier Developments (LSE:FDEV) after a 2017 fundraising in which entertainment company Tencent Holdings (SEHK:700) took a big stake.

Cambridge-based Frontier recently announced two important IP licences, including with Games Workshop (LSE:GAW) to develop and publish a real-time strategy game based on Warhammer Age of Sigmar. The other is with Formula 1 for four games starting from the 2022 F1 season.

CEO David Braben, who set up Frontier 25 years ago, said the company had a bright future post-lockdown “as we believe many of our new players will stay with us for the long term”.

While the video gaming industry flourishes, Bloomsbury Publishing (LSE:BMY) has been finding it harder to capitalise on the fact that people now also have more time for reading.

It warned the impact of the pandemic may be substantial, given that orders for print books comprised 79% of the company's revenues for the year to 29 February. The company has modelled a severe but plausible downside scenario, where print revenues are reduced by 60% to 65% for the three months to July before a gradual recovery through to March.

Under this scenario, Bloomsbury said it would be able to stay within the headroom of current banking facilities. It recently strengthened its balance sheet with an equity placing raising £8.4 million, but said today it would not be prudent to pay a cash dividend.

The Harry Potter publisher, which has a 24-year record of dividend growth, will instead issue new shares in August equivalent to its previous intention to pay a final dividend of 6.89p a share. This would have resulted in a 3% rise in the total dividend to 8.17p a share.

Annual profits today grew by 9% to £15.7 million, with revenues flat at £162.8 million despite the impact of coronavirus on its Chinese sales during January and February.

There was better news for income investors from Severn Trent (LSE:SVT) after the FTSE 100 index-listed utility said it would pay a final dividend of 60.05p a share worth £145 million. This planned payment on 17 July is in line with the inflation plus at least 4% allowed by regulators.

Underlying profits fell £3 million to £570 million in the year to March 31, partly due to a significant property sale the previous year. Expectations for higher unemployment and stressed household finances meant the company recorded a bad debt charge for the period of £42.5 million, including £2.2 million for direct Covid-19 risks.

The impact is also being felt at its Water Plus joint venture, which as a retailer in the non-household market will be affected by the closure of factories and lower economic activity.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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