The City has responded well to today’s interim results from Keywords Studios PLC (AIM:KWS, OTC:KYYWF), despite a number of visible headwinds impacting the video games services and localisation company.
Writers’ strikes in the US, sluggish global mobile sales and the looming threat of generative AI didn’t stop the group from increasing group revenues by 10.4% on an organic basis with underlying earnings growing 10.3% to €77.3 million on a slightly reduced margin of 20.1%.
Peel Hunt was not too phased over Keywords flipping into a net debt position either. “Given the cash-generative nature of the business, we expect this will return to net cash for full year, dependent on M&A activity,” said the broker.
Peel Hunt contended that “the creation of an AI Centre of Excellence and continued long-term strategic partnerships with key clients leave the firm well positioned to exploit growth opportunities in the coming years”.
The broker has a buy rating with a chunky price target of 3.300p.
Keywords’ EBITDA multiple underplays prospects
Shore Capital Markets’ last published forecasts implied a 54% second-half revenue weighting, but given ongoing uncertainty within the US creative industry, analysts are expected to nudge this guidance down by a low-single-digit percentage.
This still implies full-year revenue growth somewhere in the high teens while maintaining an adjusted operating margin of 15% supported by a disciplined cost base.
Shore Cap analysts stated: “Despite this slight downward adjustment, we view the current share price, and sub 8x EBITDA valuation, as failing to account for the long-standing client relationships held by Keywords,” while noting the group’s “extensive, and diverse, technological capabilities and dominant exposure within a growing market”.
Issuing a buy rating with a 1,473p price target, the analysts suggested a more reasonable multiple in the low-to-mid teens.
Keywords shares were swapping for 1,384.96p at the time of writing.