Keywords Studios can keep growing strongly for years to come – broker

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Keywords Studios PLC (LON:KWS) is looking better than ever and can keep up its strong growth performance over the coming years, that’s the view of Liberum Capital, which upgraded its price target after today’s financial results.


Liberum repeated its ‘buy’ recommendation and set a new price target of GBP24.50 per share, suggesting some 14% upside to the current price of GBP21.47.


READ: Keywords Studios confirms continuing revenue growth


The acquisitive video game services firm today confirmed a 13% increase in first-half revenue at EUR173.5mln, with organic revenues marking an 8% rise.


The group’s underlying earnings (adjusted EBITDA) jumped 19% to EUR30.8mln for the six months ended June 30, 2020, versus EUR25.8mln in the same period of 2019.


Keywords highlighted strong demand for its services and a robust trading performance with its largest service line, game development, showing particularly strong growth.


At the same time, Keywords announced its latest acquisition – picking up LA-based Heavy Iron Studios Inc, a technical specialist that typically works on top-tier game titles.


Reacting to the positive results statement Liberum analyst Andrew Bryant, in a note, described Keywords as “a close to GBP2bn equity value leader in the gaming services market.”


Bryant noted that through organic growth and targeted M&A the company delivered around 40% CAGR profit over the last few years.


“With the outlook for the sector looking better than ever, and large developers and publishers restructuring many of their supply agreements, we see no reason why KWS cannot continue to deliver the same playbook for the next 3 years,” the Liberum analyst said.


The price target hike comes as Liberum upgrades its profit forecast for 2020.


Byrant added: “The upgrades today predominantly reflect the successful management of the business throughout COVID-19, and the minimal disruption to client demand (versus the more cautious view we took earlier in the year).


“We increase our FY20 revenue forecast to EUR369m (was EUR355m), dropping through to an Adj. EBITDA of around EUR66m (was EUR52.4m) and Adjusted PTP of EUR47m (was EUR38m).”

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