viewKeywords Studios PLC

Keywords Studios expects ‘supercharged years’ with new console launches


  • Supplies range of technical services to computer games developers and publisher
  • Clients include Sega, Nintendo, Google, Microsoft and Warner Bros
  • Employs buy-and-build strategy and has been expanding rapidly
Keywords Studio

Quick facts: Keywords Studios PLC

Price: 2204 GBX

Market: AIM
Market Cap: £1.62 billion

What Keywords Studios does

Keywords Studios PLC (LON:KWS) supplies a range of technical services to computer games developers and publishers.

Some of the services it provides include art direction, 3D animation, software engineering, audio services, functionality quality assurance (QA), localisation (enabling games to be published in several languages) and player support.

Game development is its largest addressable market — estimated to be valued at well in excess of US$3bn but with just a fifth of services across the industry currently outsourced, though Keywords clients include Sega, Nintendo, Electronic Arts, Microsoft, Google, Warner Bros and Tencent Games.

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

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

How it's doing

Organic revenues grew by 8% in the first half of 2020.

In a trading update, the group said it expects to report first-half revenues of about €173.5mln, representing an increase of around 13% on the prior year’s €153.2mln, despite the disruption caused by the coronavirus (COVID-19) pandemic.

What the boss says: Andrew Day, chief executive

The coming release of a new generation of video game consoles, notably Sony’s PlayStation 5 and Microsoft’s Xbox Series X, is expected to bring several “supercharged years” for video game development service firms.

The new cycle is expected to see between “two to three years of increased business”, adding that he foresaw “no negatives” from the next step in video gaming technology

The old console generation will also have a part to play, Day said, as new game releases will often be part of a “dual flow” of titles that are released for both the old and new hardware.



What the brokers say

Shore Capital initiated coverage in June with a ‘buy’ recommendation noting Keywords is building the world’s leading tech and creative services platform focused on video games, “the most complex of interactive content”. 

“It is well known for its high-quality work and global reach, and by having a highly diversified model it can offer an end-to-end service across all platforms and even in adjacent industries. It can also leverage its locations to access key talent pools and speed up growth.”

The 2020 financial year is likely to take a small impact from coronavirus but the analysts expecting a return to historical norms, which include an above-industry revenue growth rate, a gross profit margin of 38% and an adjusted profit margin building to 17% by 2023. 

Supported by an extra £100m from a recent placing, the analysts expect cash generation to continue and for the dividend to return to a progressive strategy after 2021 with around a 10% increase year-on-year.

In August, Berenberg increased its full-year estimates for profits in the three years  2020/21/22 by 17%/4%/5.3% respectively, while its share price target went up to 2,250p.

Sales grew by 13% in the first half says Berenberg, of which 8% was organic and well ahead of the broker’s expectations.

Growth should be even better in the second as audio and testing studios reopen after lockdown and the console cycle and the associated game launches.

One constraint is entry-level recruitment, but Berenberg sees this unwinding at the end of this year when Keywords will be able to take advantage of the demand for its services.

Inflexion points

  • Continues with acquisitions plan
  • Videogame industry booming during pandemic
  • Busy years ahead with new console cycle


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