Gaming is thriving in 2020: 3 UK shares I’d buy to get rich and retire early

These 3 UK shares are up 65% so far this year. Harshil Patel looks at how 2020 lockdowns have supercharged the already growing gaming sector.

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The gaming sector is thriving, and one of the key drivers is a shift to cloud gaming. This year’s Covid-19 lockdown has provided a further boost to game playing and these excellent UK shares. One of them is Frontier Developments (LSE: FDEV), which has seen an increase in demand in its immersive games.

It was founded by David Braben in 1994 and he still owns 33% of the company. I like UK shares of companies that have senior management that are aligned with the interests of other shareholders, so Frontier Developments gets a tick in the box from me.

This UK games creator has titles including Elite Dangerous, Planet Coaster, Jurassic World Evolution, Planet Zoo and more. Earlier this year, it announced a multi-year game licence with Formula 1®, which it called a “strategic milestone for Frontier”.

The company has made several recent exciting developments, and despite its share price trading near an all-time high, I believe there is further momentum to drive this UK share higher.

A UK share with skin in the game

Team 17 (LSE: TM17) is another company that is founder-led. Co-founder Deborah Bestwick started Team17 30 years ago, and retains a sizeable shareholding of 22%. As mentioned, this ‘skin in the game’ is a big plus in my opinion.

It is known for the flagship Worms franchise but has now diversified after a restructuring in 2018. Today, in addition to its own content library, it is also a partner for creative indie developers. Around 90% of its revenues are from digital sales, which allows it to control pricing and game lifecycle management.  

Team17 is a well-run, high-quality, and growing company. It has a return on capital of 22%, operating margin of 31%, and net cash on the balance sheet. These quality UK shares have performed well so far this year, gaining c. 85% to date. With a price-to-earnings (P/E)  ratio of 45, it is more expensive, but I believe the higher rating is justified and would not hesitate to back it.

Racing ahead

Codemasters (LSE: CDM) specialises in racing games, and trading since the start of the year has been particularly strong. The board recently announced that revenue and earnings will be significantly ahead of current market expectations.

These revised expectations are driven by a particularly strong performance of its Formula One title, F1® 2020 and continued strength of the company’s back catalogue.

I’d say that Codemasters is a top choice when looking at UK shares in the gaming sector. It has an operating margin of 21%, an earnings-per-share growth rate of 43% and a double-digit return on capital of 12%. It looks well financed, with net cash on its balance sheet.

Its share price has increased by around 45% this year to date and is trading near an all-time high – a positive sign in my opinion. Furthermore, with a P/E ratio of 24 and PEG ratio of 0.8, it looks relatively cheap, and for that reason, I would buy more of these UK shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harshil Patel owns shares in Codemasters. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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