Video game production company Keywords Studios PLC (AIM:KWS, OTC:KYYWF) suffered a blow to its valuation in 2023 due to artificial intelligence (AI) fears and a weak industry backdrop, but Shore Capital Markets analysts see this as a buy opportunity for a profitable, market-leading company.
Despite the 40% share markdown, Keywords posted above-market growth in organic revenues and earnings, while the acquisition of notable video game developer The Multiplayer Group in December provides “an excellent pipeline for 2024”, reckon the analysts.
Further adding to ShoreCap’s investment thesis, Keywords is well leveraged with a €65 million (£56 million) net debt position, with EBITDA margins tipped for 20% in the current financial year.
Industry trends are looking favourable for Keywords, with ShoreCap stating: “We continue to see the group as strategically placed, with market share opportunities and our assumption that, following mass layoffs in the industry, we could see an increased demand for outsourcing over the medium term.”
Furthermore, AI could actually represent an efficient driver for the group rather than an existential threat, the analysts said.
ShoreCap sees a fair share price value of 1,800p, indicating a 19% upside against the current market price of 1,510p.