Keywords Studios (KWS) once again demonstrated strong growth in the six months to June, with sales up 17.3 per cent on a like-for-like, constant currency basis. The rate of growth more than doubled to 39.3 per cent once the contribution from its acquisitions was taken into account, but – presumably – concerns about the margin prompted some to pull back from the shares, sending them down by a tenth following the results announcement.
The group acquired four companies in the half, fewer than has historically been the case, which chief executive Andrew Day attributed to a lower number of opportunities in the market. However, he said it was keen to do more deals, particularly in the game development and marketing services sector. The group’s activity so far in the year pushed its net debt up to €9m, but Mr Day said he would be comfortable as long as borrowing stays below twice the adjusted cash profits, which came in at €25.8m for the first half.
The acquisitions have continued into the second half of the year, with the purchase of German-language voiceover studio TV Synchron announced alongside the results. Management said it is “actively reviewing” a number of attractive opportunities.
Growth requires investment, however, and the costs associated with recruiting and equipment have weighed on the group’s profitability, pushing the adjusted pre-tax profit margin down to 12 per cent from 14.6 per cent in the prior period. While management expects these to begin to unwind in the second half, margins are not expected to climb back up to around 15 per cent until 2020.
The group is benefiting from the growth in demand for game development, and the attendant trend towards outsourcing. This is only expected to grow in coming years with the launch of game streaming platforms, beginning with Google (US:GOOGL) later this year, and next-generation consoles from both Sony and Microsoft (US:MSFT) expected to launch in 2020.
Broker Numis cut its profit forecasts following the announcement, and now expects adjusted pre-tax profits of €41.6m for the full year, with EPS of 45.1¢, up from €37.9m and 41.7¢ in 2018.
| KEYWORDS STUDIOS (KWS) | ||||
| ORD PRICE: | 1,323p | MARKET VALUE: | £861m | |
| TOUCH: | 1,314-1,324p | 12-MONTH HIGH: | 2,020p | LOW: 885p |
| DIVIDEND YIELD: | 0.1% | PE RATIO: | 107 | |
| NET ASSET VALUE: | 314¢* | NET CASH: | €11.6m | |
| Half-year to 30 Jun | Turnover (€m) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
| 2018 | 110.0 | 10.8 | 12.10 | 0.53 |
| 2019 | 153.2 | 6.7 | 4.69 | 0.58 |
| % change | +39 | -38 | -61 | +9 |
| Ex-div: | 03 Oct | |||
| Payment: | 25 Oct | |||
*Includes intangible assets of €186m, or 286¢ a share £1 = €1.28 **Net cash does not include lease liabilities of €20.6m | ||||
