Keywords Studios PLC (LON:KWS) moved higher this morning after the company beat expectations with a strong first half performance.
The AIM-quoted firm, which provides services to the video games industry, saw revenues jump 50% to €63.7mln (H1 2016: €42.4mln) during the six months to 30 June, while adjusted pre-tax profits also surged by 60% to €9.6mln (H1 2016: €6mln) in the period.
All of the group’s seven service lines showed “good” like-for-like growth, with the exception of the Audio division which had a particularly tough comparative due to “exceptional performance” of Synthesis this time last year.
Underlying like-for-like revenue growth was 17% ahead compared to the first half of 2016, although that figure jumps to 28% when Synthesis is excluded from the calculations.
Confident in ‘at least’ meeting market expectations
“We are delighted with our progress so far this year,” said chief executive Andrew Day.
“This has enabled us to deliver a first half performance ahead of our expectations, underpinning our confidence in the group at least meeting market consensus for the year as whole.
“We continue to win new clients and grow market share and are regularly seeing the benefits of our wider geographic reach and broader range of services as we introduce additional services to established clients.”
Healthy pipeline of takeover targets
Keywords said it is delivering on its strategy of growing the business both organically and through acquisitions as it looks to become the ‘go-to’ supplier of technical services to the video games industry.
Since the start of the year, the group has made four acquisitions – Spov, XLOC, GameSim and Red Hot – which have extended its offering.
It spent just under €7mln on those purchases but it might not be done there, as it keeps an eye on a “healthy pipeline of high quality acquisition opportunities”.
The €35mln credit facility it agreed with Barclays back in April, combined with the cash it generates and the “judicious use” of shares, leaves the company well-positioned to complete more takeovers this year.
Shares gained 7.1% to 960p on Thursday morning.
Broker lifts forecasts and price target
finnCap has upgraded its full-year revenue and pre-tax profit estimates following today's update.
The City broker is now expecting Keyowrds to turn a pre-tax profit of €22.4mln on higher revenues of €138.8mln for the 12 months to end December.
“Keywords has released a strong interim trading update, disclosing like-for-like revenue growth of +17%, or +28% when excluding Synthesis, which had an exceptionally strong performance in the first half of 2016,” said analyst Harold Evans.
“Profitability has also improved, with adjusted profit before tax margins up c.100bps year-on-year to 15.1%.
“Following this update, we lift [our full-year] revenue and adjusted profit before tax by 5% and our target price to £10.”
--Updates for share price and broker comment--