Log in to Keywords Studios for growth

Keywords has offices in more than 15 countries and counts 20 of the top 25 video game companies among its customers, including Microsoft, Supercell and Electronic Arts. Brisk trading and new customer wins including Amazon and Facebook-owned Oculus VR, drove comparable sales up a fifth in 2015, propelling adjusted pre-tax profits up by more than half.

Takeovers have been key to Keywords' success: it has made 11 acquisitions since the start of 2014. Those deals have allowed it to tap into growth markets such as China and Brazil. They've also widened its range of services beyond localisation and localisation testing to include functional testing, audio, customer support and art creation. For example, in April it snapped up Chinese art outsourcer Mindwalk, boosting its capacity by about 30 per cent in the lucrative art creation sector. And last month it struck its biggest ever deal, worth up to €18m (£14.2m), for rival Synthesis, doubling its audio capability and making it the world leader in localisation and voiceover recording for video games.

Keywords' past acquisitions seem to be paying off. They helped boost sales in Asia last year from 9 per cent of the group total to 17 per cent; they've allowed increased cross-selling, with a 70 per cent rise in the number of customers taking at least three services to 51; and they've increased higher-margin sales, which helped widen Keywords' 2015 gross margin by 3.6 percentage points to 37.6 per cent. They also underpinned comparable sales growth in the double digits across the art creation, functional testing, audio and customer support segments.

And orders should keep flowing in. Industry researchers at Newzoo predict the video game industry will grow by more than 8 per cent a year, driven by strong demand in Asia. The market is also highly fragmented, limiting competition and providing plenty of acquisition opportunities.

Keywords' rapid growth has required two cash injections since its 2013 float, with €21.5m raised through share placings at 150p in 2014 and 190p last year. Increased working capital needs have also absorbed cash, with receivables (revenue not yet collected in cash) rising €4m last year to €15.8m. Still, the balance sheet looks as though it should be able to support further deals given the group borrowing facility of €15m, and broker Numis forecasts net cash of €9.8m at the end of 2016. Further acquisitions could see Keywords expand into industries such as film, digital learning and online gambling. That said, the challenge of integrating so many businesses is also a key risk.