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Keywords Studios profits jump 65% as acquisitions boost earnings in 2018

The firm reported a 65% rise in adjusted pre-tax profit to €37.9mln for the year, while revenues climbed 66% to €250.8mln
Video game player
Keywords provides support services to the video game industry

Keywords Studios PLC (LON:KWS) reported a two-thirds increase in profits in its latest full year after a string of acquisitions helped it substantially boost earnings.

The AIM 100 firm, which provides support services to the video game industry, reported a 65% rise in adjusted pre-tax profit to €37.9mln for the year ended 31 December 2018, while revenues climbed 66% to €250.8mln.

READ: Keywords moves further into the cloud with acquisition of GetSocial

Like-for-like revenues were up 10.1% in the year with gross margins rising to 38.2% from 36.4%.

As a result of the improved performance, Keywords hiked its final dividend by 10% to 1.08p per share taking the full-year dividend to 1.61p from 1.46p previously.

The group was lifted by eight acquisitions during the year including game engineering firms Studio Gobo and Electric Square as well as AI and machine learning group Yokozuna Data.
The company had also kicked off the new year with two more acquisitions, having purchased marketing services group Sunny Side Up and social media management firm GetSocial post-year end.

Andrew Day, chief executive of Keywords, said apart from the new acquisitions the firm had started 2019 “promisingly” and was “actively reviewing” more purchases.

He added that the business was seeing “good overall demand” for its services, adding that there was a “likely increase in demand” expected from the arrival of games subscription and streaming services from tech giants Google and Apple Inc (NASDAQ:AAPL), who both announced subscription-based gaming services in March.

While capital expenditure was expected to be “lighter” than in 2018, Day said the firm wouldn’t hesitate to invest in growth as opportunities arose.

"Our strengthened market leadership and breadth and scale of service offering enable us to take advantage of the multiple growth opportunities afforded by a market that continues to grow in size and sophistication", Day said.

Broker ups target price expects “positive” industry news to benefit

In a note to clients, analysts at broker Liberum upped their target price for Keywords to 1,415p from 1,245p, saying the “positive news flow” around the video game industry over the past weeks was “likely to benefit” the firm.

The broker added that among the ongoing trends in the industry that could be good news for Keywords was the continuing popularity of online multiplayer video game Fortnite, for which the company does a “considerable” amount of work.

“Despite Fortnite not being as strong as it was a year ago, it remains an extremely large and successful franchise, with millions of players around the world… given its very large size, is an important franchise to have a foothold in”.

In early trading Monday, Keywords shares were down 1.1% at 1,305p.

--Adds broker change and share price--

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