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Margins stumble at Keywords

Investments weighed on overall margins in 2019
April 17, 2020

Keywords Studios’ (KWS) adjusted cash profits grew by 13.2 per cent to €49.5m (£43.1m) in 2019. The group, which provides technical services to video game companies, completed eight acquisitions last year, supporting its game development, marketing and audio services.

IC TIP: Buy at 1,510p

It expanded its facilities in Montreal, Manila and Brighton among other locales, as well as establishing a new presence in Leamington Spa, adding more than 1,400 new workstations, which represents an approximate 25 per cent increase in capacity. However, the company said that its investment in operational capacity, infrastructure and management weighed on margins – analysts at Peel Hunt calculated a 2.6 per cent decline year-on-year. 

Its testing divisions have experienced some disruption due to coronavirus, as remote working creates security concerns. Its audio business, too, has been affected, due to the temporary closure of its studio facilities. The player support division however has seen a surge in demand, as more people flock to video games in lockdown areas. 

2020 trading started in line with market expectations, and management reported that the only limited impact from the coronavirus outbreak was seen in the first two months at its five studios based in China. But the company has scrapped its final dividend, as well as cutting discretionary expenditure, reducing working capital and delaying certain capital projects as a precaution. 

Broker Jefferies forecasts adjusted pre-tax profit of €40.6m and EPS of 26.76ȼ in 2020, rising to €55m and 40.9ȼ in FY2021. 

KEYWORDS STUDIOS (KWS)  
ORD PRICE:1,510pMARKET VALUE:£ 992m
TOUCH:1,500-1,560p12-MONTH HIGH:1,880pLOW: 1,069p
DIVIDEND YIELD:naPE RATIO:114
NET ASSET VALUE:340ȼ*NET DEBT:€17.9m**
Year to 31 DecTurnover (€m)Pre-tax profit (€m)Earnings per share (ȼ)Dividend per share (ȼ)
201558.05.17.01.21
201696.69.411.21.33
201715112.012.41.46
201825122.123.21.61
201932717.415.2nil
% change+30-21-34-
Ex-div:na   
Payment:na   
£1 = €1.148. *Includes intangible assets of €196.8m, or 299ȼ a share. **Includes lease liabilities of €21.9m.