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Keywords Studios keeps on buying

Profits and earnings have more than doubled at the video games services company
September 20, 2017

There was no missing the pride in chief executive Andrew Day’s description of half-year results from Keywords Studios (KWS): “It has been a bit of a stellar performance”. Browse through the numbers and it is hard to disagree. The year-on-year revenue growth was boosted by acquisitions: a dozen were completed within the past 18 months. Assume they were part of the group in both periods and underlying turnover growth was still strong at 17 per cent. This strong top-line performance and a slight uptick in gross margins sent operating profit up by nearly three-quarters to €7.8m. Meanwhile, cash inflows from operating activities reached €2.3m (£2.04m) – two-thirds of net profits.

IC TIP: Buy at 1275p

Of that cash, €6.7m went into acquisitions in the reported period, net of cash acquired. According to Mr Day, this strategic expansion has also helped drive up like-for-like revenue growth, as the company is now able to offer more services to its existing customers. Some 84 customers – which include 23 of the top 25 video games makers by revenue – now use three or more of the group’s products, up from 60 in 2016.  

Since the period end, Keywords has acquired three Paris-based audio companies, so top-line progress should continue. Broker finnCap expects forecast pre-tax profit and EPS of €22.2m and 29.6ȼ in the year to December 2017 (from €14.8m and 20.1ȼ in 2016).

KEYWORDS STUDIOS (KWS)  
ORD PRICE:1,275pMARKET VALUE:£713m
TOUCH:1273-1278p12-MONTH HIGH:1,489pLOW: 408p
DIVIDEND YIELD:0.1%PE RATIO:97
NET ASSET VALUE:127ȼ*NET CASH:€1.1m
Half-year to 30 JunTurnover (€m)Pre-tax profit (€m)Earnings per share (ȼ)Dividend per share (p)
201642.42.62.40.44
201763.85.56.10.48
% change+50+111+151+9
Ex-div:05 Oct   
Payment:27 Oct   
*Includes intangible assets of €61.6m, or 110ȼ a share   £1=€1.13