Keywords Studios – Still To Unlock Return To High Growth

  • Organic revenue growth 10.4%
  • Underlying operating profit up 5.2%
  • Four acquisitions year to date for up to ~€130m.

Keywords Studios’s Q2 Earnings

Keywords Studios PLC (LON:KWS) half year results closely mirrored the guidance from last month’s trading update. The Group’s broad offering of services to the video games industry is allowing it to outperform what is a challenging backdrop.

That’s not set to get any easier in the short term, with the ongoing US entertainment strikes potentially knocking off up to 2.5 percentage points from organic revenue growth for the full year. Currently consensus suggests total revenue growth of 19% for the full year but around half of this is likely to be from acquisitions.

The current market could tease out some further attractive buy-out opportunities. Although Keywords has slipped into a small net debt position, cash conversion remains strong so it still has some firepower to execute further deals.

Looking ahead structural growth drivers in the video gaming market, such as the emergence of streaming models, and the shift to mobile, present Keywords with an opportunity to accelerate growth again. The valuation has come down from its heady heights but investors have been spoilt by much higher growth in the past. Any further slowdown could still be punished by the market.”

Article by Derren Nathan, head of equity research at Hargreaves Lansdown