A strategic shift into development and post-production services looks to be paying off video game services leader Keywords Studios PLC (AIM:KWS, OTC:KYYWF), with the latest trading update predicting solid results for the interim period.
The strong performance of the newly-formed Create and Globalize service lines underscores a projected organic revenue growth of 22% and a 35% year-on-year increase in profit-before-tax (PBT) to €54m (£45mln).
Chief executive Bertrand Bodson said: "Keywords has started the year very strongly, building on the momentum achieved in 2021 as we continue to benefit from a renewed focus on content creation post-pandemic and the structural trends towards outsourcing.”
London-listed Keywords was exposed to the Russia/Ukraine conflict via its Sperasoft studio, necessitating team relocations to Poland, Serbia, Armenia and Malta.
While a transition period is expected in the second half, the group stated: “We are focused on making this as smooth a transition as possible for both our people and international clients, with the benefit of our global footprint and infrastructure.”
Levelling up
On Wednesday Keywords announced the acquisition of Mighty Games, a Melbourne, Australia-based studio focused on AI-driven games testing solutions.
It is handing over A$4.8mln (£2.73mln) in cash and A$1.2mln in shares, with an additional A$4mln earmarked for performance-linked payments.
Of the acquisition, Bodson said: “Mighty's talented game development team further strengthens our game development presence in Melbourne and follows the recent acquisitions of Tantalus and Wicked Witch in Australia."
In further acquisition news, this week saw the finalisation of Keywords’ purchase of US-headquartered Forgotten Empires, developers of the successful Age of Empires series, for US$32.5mln (£26.7mln).
Keywords also issued 135,559 new ordinary shares to Climax Studios on Tuesday as part of its £43mln acquisition of the Portsmouth-based games developer.
Despite the raft of portfolio add-ons, Keywords has retained sufficient funds in the piggy bank for future acquisitions: On top of a net cash reserve of €121mln (£101mln), the group has €150mln of undrawn funds available under a revolving credit facility.
From the brokers
Keywords is “continuing to deliver,” said analyst William Larwood at Liberum, who pointed to strong client-side demand and consistent revenue growth.
Liberum’s KWS target price of 3,150p represents a potential upside of 19% and though the price-to-earnings (PE) ratio of 30.1x is above industry average, Liberum believes that “Keywords offers a unique and low-risk way to play the gaming sector, given the diversification of its service lines, and no dependency on the success of titles”.
Shore Capital’s analysts also sounded a positive tone, stating: “We continue to see KWS as well placed to benefit from favourable structural growth opportunities as demand for bigger and more content-rich games remains, and look forward to further progress in the second half. BUY.”
In response to the positive forecasts and successful acquisitions, KWS shares spiked 7.4% in Wednesday’s trading period.
Interim results are expected to be released on September 21.