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Keywords Studios on course to meet full year expectations as it continues expansion

Keywords has a buy-and-build strategy and has been expanding rapidly since its first acquisition in 2014.
Keywords Studio
Keywords Studio supplies technical services to video games developers and publishers
  • Focused on growing through acquisitions

  • Keywords on track to meet full year expectations

  • Citi and Numis have 'buy' recommendation on the stock 


What Keywords Studio does

Keywords Studio supplies a range of technical services to computer games developers and publishers.

Some of the services it provides includes art services, software engineering, audio services, functionality quality assurance (QA), localisation (enabling games to be published in several languages), localisation QA, and player support.

Among its clients are Sega, Nintendo, Google Microsoft and Warner Bros.

Established in 1998 it now has studios in more than 42 locations in 20 countries across four continents.

Keywords has a buy-and-build strategy and has been expanding rapidly since its first acquisition in 2014.

What Keywords owns

The list of what Keywords owns is long and will most likely to continue to grow as the company aims to make six small bolt-on acquisitions each year and one or two larger purchases.

Some its businesses include; Babel Media, which provides testing services to game developers; Kite Team, a provider of localisation and audio services to Latin America and Spain; and Alchemic Dream, a Canada-based business that supplies multi-lingual customer support services to the video games industry.

Others include: Reverb, a Brazilian firm that the provides localisation and audio management services to games developers; Volta, a Quebec-based firm that supplies major games companies with outsourced art creation services; and Enzyme Testing Labs, a Quebec business dedicated to the functional testing of applications and video games.

Sonox Audio Solutions is the group’s Spanish firm that supplies audio services to game developers.

In China, Keywords owns Mindwalk, which provides outsourced art creation services to the video games industry, and Red Hot CG, which specialises in the production of graphical art assets for video games.

In France, businesses include localisation firms Arsec SAS, La Marque Rose SARL, Dune Sound and Around the Word.

Elsewhere in Europe there is Synthesis, an Italian company that provides localisation, audio and testing services to the video games sector. Another Italian business includes Binari Sonori, which offers translation and voice-over services for games developers.

UK-wise, Keywords owns Liquid Violet, a voice production and casting studio; Player Research, a user testing and research consultancy;  SPOV,  a London-based animation and digital design firm; d3t, a video game software developer; and  XLOC, which develops a web-based content management system that can be integrated into any major 3D game engines.

Across the pond, GameSim is a US company specialising in outsourced video game localisation, art and sound, as well as providing live support services for gamers.

Other US-based firms are Sperasoft, which provides game development, art creation and software engineering services; video game art services company Liquid Development;  and VMC Consulting, a leading video games beta tester.

LOLA is a Mexican firm that provides Latin American Spanish dubbing, localisation and sound design services with clients including Warner Bros and Ubisoft.

Last year Keywords continued to expand through acquisitions by purchasing Sao Paulo audio studio Maximal Studio, music composition firm Cord Worldwide Limited, music services business Laced Music Ltd, arts services firm Fire Without Smoke and audio company Blindlight.

It also bought creative and technical services provider Snowed In Studios, artificial intelligence firm Yokozuna Data, engineering services businesses Electric Square and Studio Gobo, art services provider The TrailerFarm and Sunny Side Up Creative, which supplies marketing services such as game trailers.

Inflection points:

  • Keywords expects to post full-year adjusted profit before tax of around €37mln on revenues of about €250mln, representing increases of 61% and 65% on the prior year, respectively.
  • Keywords selectively reviewing a strong acquisition pipeline
  • Strengthened management team with newly created positions of chief commercial officer, chief marketing officer, global operations director, engineering service line director
  • In the first half, the group spent €3.8mln in new or expanded facilities in Montreal, Dublin, London, Liverpool, Madrid, Katowice, New Delhi, Chengdu, Manila and Tokyo, adding 660 workstations
  • Credit facility for up to €105mln secured in the first half to help fund acquisitions


What analysts think

Investment bank Citi has a ‘buy’ recommendation and target price of £21.50 on Keywords. Citi thinks the recent addition of 660 new workstations is a “lead indicator of growth momentum” and sees  “higher acquisition assumption”.

“We increase our annual revenue contribution from acquisitions to €35mln, which results in an increase to our acquisition upside valuation to £5.65,” it said.

“This compares to an average of c.€40m since listing in FY14 and is in line with the mid-point guidance range for bolt on acquisitions, excluding any larger transactions.”

Numis also has a ‘buy’ rating on Keywords and a target price of £24.20.

The broker said it continues to view Keywords as a “top technology sector pick”. The broker noted that management is confident of meeting market expectations for the full year, meaning organic growth of 13%, and thinks this demonstrates “ongoing market share gain within an already attractive market”.

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