Keywords Studios - Making hay while the sun shines
Keywords has delivered exceptional growth in H121, reflecting continued strong demand from video games developers driven by gamers desperate for new content. Expected revenues of €238m are up c 37% y-o-y, with organic growth of 23% as all service lines performed well against a weak H120 comparator (initial impact of COVID-19). Margins were also elevated, with adjusted PBT of €40m, an 80% y-o-y increase and a margin of 16.8%, continuing the uplift in margins seen in H220. With costs expected to start to normalise towards the end of the year, we have raised our FY21 adjusted PBT margin to 16%, but have left our FY22 and FY23 margins at 15%. Keywords trades on a P/E of 39.4x our updated FY21 estimates, falling to 37.1x in FY22. However, we expect that further M&A will lower Keywords’ rating.Keywords Studios is a technical services provider to the video games industry. Co.'s segments include: Localization Services, which relate to translation and cultural adaptation of in-game text and audio scripts; Localization Testing, which includes testing of linguistic correctness and cultural acceptability of computer games; Audio/Voiceover Services, which relate to audio production process for computer games; Functional Testing, which relates to quality assurance services provided to game producers; Art Creation Services, which relate to the production of graphical art assets for inclusion in the video game; and Customer Support, which relates to the live operations support services.
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