Shares in Keywords Studios (KWS) rose by more than a tenth after a full-year trading update allayed fears about its future revenue growth trajectory. The company’s market value had deteriorated since its September half-year results, ostensibly reflecting concerns not only about its ability to continue driving the top line, but also to integrate acquisitions. There has also been the threat of heightened Chinese regulation affecting the broader gaming market.
Back on 21 December, the company had guided towards sales “in the region of €250m” (£219m) for 2018 – slightly below analysts’ forecasts – with adjusted pre-tax profits of €37m, in line with consensus estimates. But Keywords’ latest update suggested that things had improved; now, it expects revenues of “at least” €250m, and adjusted pre-tax profits of around €37.8m. Altogether, this means that revenues and pre-tax profits will have grown by 65 per cent and 64 per cent respectively year-on-year.
Organic revenues rose 10.1 per cent on a like-for-like basis. And these would have grown by 14.9 per cent, excluding VMC – a provider of video-game functional testing and customer support in North America – bought in October 2017 via a £75m share placing.
Keywords acquired eight new businesses last year, but still ended up with just €0.4m net debt. This compared with €11.1m net cash in 2017. Broker Berenberg expects net cash to increase to €24m in FY2019 and believes that – with its additional debt facilities – the group appears well-positioned to continue with its M&A strategy this year. Analysts here also note that China has lifted its gaming freeze. And though Keywords cited a weaker-than-expected performance from its localisation testing business, this stemmed from some titles shifting from last year’s fourth quarter into this year – something that should provide a boost to FY2019.
