Keywords Studios PLC (AIM:KWS, OTC:KYYWF)’s acquisition of The Multiplayer Group (MPG) from Improbable has caught the attention of City analysts, with Shore Capital Markets reckoning that the 360-strong team could help scale Keywords’ rapidly growing Create division.
Nottingham-based MPG works with some of the world's best-known studios and publishers, including Activision Blizzard, Bethesda, Zenimax, Epic and 2K, thus adding “a wealth of experience in the development of AAA multiplayer games along with analytical services”.
On the financial side, ShoreCap said the £76.5 million deal falls within Keywords’ expected five-to-seven-times EBITDA range.
“MPG is said to be experiencing strong growth and has an excellent pipeline for 2024,” noted analysts. They estimate an EBITDA contribution of £10 million for the 2024 financial year, with a margin in line with Keywords’ Create division of around 25%.
The deal is expected to be EPS accretive in its first full year post acquisition.
ShoreCap did note that, due to the acquisition, Keywords will not shift back to a net cash position by year-end as previously expected, though the balance sheet will remain “barely leveraged” at 1x.
“We see this morning’s deal as in line with the Keywords strategy and complementary to its existing exposure within live services, multiplayer and general development services,” said analysts.
According to ShoreCap, Keywords is cheap compared to its competitors, with an EV/EBITDA of approximately 7x, “which is a deep discount compared to UK-listed technological services peers typically trading on a low-mid teen multiple”.
“We believe the stock’s current rating is not reflective of the strong financial track record that Keywords holds or considers the opportunities available to scale the group through its existing relationships, expertise, and the investment that it is making into new technology such as AI,” said analysts.
This cheap valuation makes Keywords a 'buy', said ShoreCap.