Keywords Studios PLC (AIM:KWS, OTC:KYYWF) is set to have another strong year, that’s according to stockbroker Liberum Capital which identifies the video games services firm as its ‘top pick’ in the sector.
As a contractor and outsourcer to the major game developers, Keywords is an excellent way to invest in the structural growth of the sector with the risks to the performance of specific game titles, the broker explained.
Liberum has a ‘buy’ rating for the London-listed shares with a target price of 3,400p which implies some 16.5% upside to the current price of 2,918p.
“Keywords continues to outperform the broader gaming market, as demonstrated by recent strong organic growth,” Liberum analyst Ciaran Donnelly said in a note.
“Its diversification and resilience will be demonstrated once again during this cycle, in our view.
“Despite the recent +10% upgrade, the shares are flat over concerns of a reduction in content spend and delayed/cancelled projects. We disagree and believe Keywords will have another strong year for reasons we outline in the note.”
Liberum highlighted that the contractor’s partners will continue to spend on content.
“This is key to maintaining market share/engaging with their audience,” Donnelly added.
“To this point, most of Keywords’ clients are AAA publishers, which have robust balance sheets.
“An easing of the console supply shortage is likely to result in continued content spend early on in the 9th generation’s lifecycle.
“In addition, AAA games typically have long development cycles, hence KWS’ Create division will be relatively insulated.
“New entrants, such as Apple, WB Games and Netflix, will be supportive for KWS. Internal headcount cuts at publishers, could also be a positive as they look to keep their cost base as flexible as possible and increase reliance on outsourcers.”
Moreover, the Liberum analyst commented that Keywords early upgrade to its market guidance (in November) would not have happened without management having a high degree of visibility and confidence in the outlook.