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Yes , all stars aligned
So today we have:
- very pleasing H1 results, with a confident outlook
- a complementary UK acquisition
- the acquisition in the USA of a very, very impressive-looking sound design team
In particular, the City was concerned whether KWS' largest acquisition to date, VMC, was being integrated OK. This is indeed happening - margins are improving and synergies occurring.
Trading is good, with forecasts being met even prior to any further acquisitions.
I like this paragraph:
"The games market is starting to focus on the prospect of games being streamed and played live across all connected devices. Advances in technology and increases in internet bandwidth including the forthcoming 5G mobile networks and the resultant reduction in latency of communications could enable streaming of games for the first time which we believe will drive record demand for gaming content."
Interims out 18/9
Keywords Studios is an international technical services provider to the global
video games industry. Established in 1998, and now with facilities in Dublin,
Rio de Janeiro, Montreal, Quebec City, Portland, Orlando, Raleigh, Mexico
City, Los Angeles, Seattle, Tokyo, Singapore, New Delhi, Pune, Rome, Milan,
Barcelona, Madrid, Taipei, Shanghai, Beijing, Zhengzhou, Chengdu, Dalian,
Manila, Yogyakarta, Hamburg, Paris and London, it provides integrated art
creation, software engineering, testing, localisation, audio and customer care
services across 50 languages and 14 games platforms to a blue-chip client base
in more than 15 countries. It has a strong market position, providing
services to 23 of the top 25 most prominent games companies, including
Activision Blizzard, Bandai Namco, Bethesda, Electronic Arts, Konami, Riot
Games, Sony, Square Enix, Supercell, TakeTwo, and Ubisoft. Recent titles
worked on include Uncharted 4: A Thief's End, Call of Duty: Infinite Warfare,
Mortal Combat X, Assassin's Creed Syndicate, Battlefield 1, Overwatch, World
of Warcraft: Legion, Hearthstone, Clash Royale, and Mobile Strike. Keywords
Studios is listed on AIM, the London Stock Exchange regulated market
Here's more on Berenberg's upgrade:
Https://uk.webfg.com/news/broker-recommendations/berenberg-lifts-keywords-studios-target-price-after-gobo-acquisition--3449946.html
"Berenberg lifts Keywords Studios target price after Gobo acquisition
Berenberg upped its price target on Keywords Studios to 2,150p from 2,060p on Tuesday, as it reiterated its 'buy' rating following the company's announced acquisition of Gobo Ltd and Electric Square, together Gobo, for £26m.
With Gobo expected to deliver around 15% organic growth and maintain high-20% EBIT margins, versus the Keywords group of circa 16%, Berenberg upped its earnings per share estimates by 1.0%- 6.5% for FY 2018-20 respectively.
Berenberg said the Gobo deal adds 170 developers to Keywords’ staff. Combined with the company's previous acquisitions of d3t, Sperasoft and GameSim, this grows its co-development staff by 38% to 610.
As a result, Keywords is establishing itself as a leading co-development player, despite entering the vertical only in May 2017, the bank said, adding that it expects M&A to continue to have a slight co-development and engineering focus in the near-term for two reasons.
"Firstly, we believe capacity those areas is relatively light versus the larger market opportunity, compared to the other verticals. Secondly, a core part of Keywords’ growth approach is to develop strategic outsource partnerships with its clients where it is embedded across multiple stages of, or the entire, game development cycle, providing a number of services."
good news is sinking in and KWS detaches from tech slowdown
Berenberg today say Buy and increase their target price to 2150p (from 2060p):
Http://investing.thisismoney.co.uk/broker-views/
Excellent news:
"expected to be earnings enhancing in the first year"
"further expands the number of the world's leading game companies who use our development services"
"ever greater visibility of games in the pipeline"
plus a large part of the consideration dependent on performance:
Https://www.investegate.co.uk/keywords-studios-plc--kws-/rns/acquisition-of-studio-gobo-and-electric-square/201808200700042246Y/
There's a big feature in the Mail on the rise of e-gaming, and KWS are tipped as one of the companies to benefit:
Http://www.thisismoney.co.uk/money/investing/article-6049935/Why-video-gaming-set-major-industry-firms-cash-in.html
"Ford notes that graphics companies are also a key component - USlisted Nvidia, which produces the graphics cards, is worth £121bn. But there are niches where UK companies are making their names.
Keywords Studios is an outsourcing business to help create and support the games. Boss Andrew Day said: 'Events management companies, tournament organisers and venue operators themselves like Madison Square Gardens, and Wembley Arena in London, will certainly benefit.'"
All sounding very promising:
http://www.proactiveinvestors.co.uk/companies/stocktube/10048/keywords-studios-not-taking-its-foot-off-the-pedal-during-busy-second-half-10048.html
ACSO and KWS going through a sector downturn though I don't think they are quite the same sector, ACSO should be less affected
Bouncing nicely now after some profit-taking, with the MMs screwing the sellers nicely.
Peel Hunt today reitrates its Add recommendation with a £19 target price.
Very impressive stuff - the growth rates for revenue and PBT at 72% and 66% respectively are even greater than in last year's H1 update.
And the dollar has strengthened nicely against the pound since 30th June, which should benefit H2 profitability further, bolstering the CEO's strong H2 outlook.
With a number of acquisitions likely in the coming months there should be no shortage of news flow and forecast upgrades:
"we are actively reviewing a number of high quality acquisition opportunities, in line with our acquisition strategy. Significant headroom in our new €105m credit facility with Barclays Bank, Lloyds Bank and HSBC (announced on 5 June 2018), combined with continuing strong cash generation and the judicious use of Keywords shares to part-fund acquisitions where appropriate, leaves the Group well placed to complete further selective acquisitions this year. At 30 June 2017, the Group had no net debt."
Excellent news - firing on all cylinders.
Revenues could have been up almost 80% if it wasn't for the declining $!
"The Group has performed strongly during the first half, with preliminary unaudited revenues for the period expected to be up by 72% to EUR109.9m (H1 2017: EUR63.8m) and an anticipated 66% increase in adjusted PBT* to EUR15.9m (H1 2017: EUR9.6m). This was achieved despite the incorporation of the historically lower margin VMC business, as well as a marked weakening of the US dollar, in which approximately 60% of the Group's revenues are denominated, against the Euro with average exchange rates having declined 12% between the comparable periods."
Having a good effect on the SP and p/e goes to 167
Terrific acquisition news - very small, but excitingly its's in the area of AL and machine learning, marking KWS' entry into this field.
Importantly, these solutions "are now ready for commercial roll out", and "can leverage the worldwide reach of Keywords and its extensive client relationships. As part of the agreement, Silicon will collaborate with Keywords in introducing the technology to Japanese game developers and publishers, and it has a non-exclusive right to resell the YD solution into the non-games markets (such a healthcare), in exchange for a share of the associated revenues":
Https://www.investegate.co.uk/keywords-studios-plc--kws-/rns/acquisition/201807230700074096V/
"Andrew Day, Chief Executive Officer of Keywords Studios, commented:
"We have been looking for opportunities to establish a foothold in the exciting area of video game analytics for a few years. This acquisition brings industry leading technology and capabilities to Keywords that we believe we can support, enhance and roll out to our clients thanks to the engineering, player research and video game specific data science skills we have within the business. While YD is pre- revenue, it is a rare asset and we expect the first clients to start implementing the software during 2018.
"As games continue to transition to a service model from a product model, the use of sophisticated analytics engines like this to automatically understand player behaviour and trigger real time decisions in-game will become increasingly valuable to our clients. The use of AI to constantly adapt the predictive models to changes that are made in the games, such as when new items, expansion packs and promotions are introduced, is critical to the future of the video games industry so we are delighted to have secured this leading-edge technology."
Nice in-fill acquisition today, but I liked this in particular showing how KWS can grow a new sector presence from nothing so quickly:
https://www.investegate.co.uk/keywords-studios-plc--kws-/rns/acquisition-of-snowed-in/201807200700032354V/
""Having grown the Engineering service line from nothing in May 2017, we now employ over 300 software engineers in multiple regions, and I'm delighted that Jean-Sylvain, Tim, Evan and their highly talented and creative team are joining the Group as we continue to grow."
With these appointments Keywords has become a truly international focused group
Aren't they starting to gamble with the business doing this. I think they need strict expenditure limits if they are potentially churning out failures.
This is an exciting new venture - KWS pick up large stakes in early stage companies for peanuts (45% for £300k!) and use their business and customer base to commercialise the Newcos:
https://www.investegate.co.uk/keywords-studios-plc--kws-/rns/launch-of-keywords-ventures-ltd/201807050700046483T/
A great idea which will pay off in spades if just one or two make it through, let alone the much higher percentage which should succeed given the fast track they're getting via KWS.
Innovative stuff indeed.
This reads well:
Https://www.trustnet.com/news/820083/fe-alpha-manager-lawson-my-three-uk-stocks-for-an-ever-changing-world
"FE Alpha Manager Lawson: My three UK stocks for an ever-changing world
27 June 2018
SVM Asset Management’s Margaret Lawson highlights three companies that are using disruptive technology to get ahead in the current market environment."
"Keywords Studios
Also playing the outsourcing theme is gaming services provider Keywords Studios – another stock which has jumped in value over the past few years.
Lawson said: “Before you wouldn’t invest in a gaming company because they might have one game that was a success but you wouldn’t know the value of the franchise.
“What you are finding now is that all of this is going to subscription and there are two things. First is you are getting more stability because once people buy into subscription they have tournaments and compete with other people and can buy products and different tiers.”
The second is that these large companies are beginning to outsource the development to specialists who can conduct the work for cheaper than taking it in-house.
This “structural growth trend” leaves Keywords, a company specialising in translation and art & design services, well-positioned.
“The big gaming companies are going to outsource their businesses and IP [intellectual property] to capable hands and a company like that is Keywords Studios,” Lawson said.
“That’s another one that is taking advantage of changes in the market and is growing through acquisition and organic growth.”
I think the SP has a good chance of closing just below the 1900 level today .... it's been wanting to higher for days, the downside is profit takers may prevent the SP closing above the 1900 (...my guess is that there will be a high level of sell orders just under that level) Still very much a long term hold :)
Looks a very good acquisition once again - a maximum $10m being paid for an average of $1m EBITDA per annum from a company KWS already know very well. And sensible allocation of the purchase price between upfront cash, large deferred consideration based on earn-outs and some locked-in shares. Plus potential cross-selling and synergy opportunities for growth in the USA and "around the world (including Bethesda, NCSoft, Sony Interactive Entertainment, and Ubisoft)". Numis retain their 2180p target and increase forecasts by 1.6%: Https://uk.webfg.com/news/broker-recommendations/inmarsat-in-play-after-echostar-bid-analysts-divided--3339002.html "Numis, which rates the stock at 'buy', said the acquisition of Blindlight gives the wider Keywords business much better ability to access Hollywood talent to help its customers in their production of games and game-related materials. The brokerage added 1.6% to its 2019 earnings per share forecasts and said its unchanged 2,180p price target is based on a scenario analysis for organic growth and acquisitions out to 2022."
Of Blindlight. A company based in LA that provides voice overs, over sees celebrity game appearences, motion capture, among other services.
Indeed. And the revenues generated by games are just staggering. "The people making money from Fortnite It managed to generate $296m (�222m) in April from in-app purchases alone. And that's more than double the revenue for February, according to market research firm SuperData Research" https://www.bbc.co.uk/news/business-44395095 Could be some big acquisitions coming up - KWS now has really significant firepower - cash, the new facility and a sky high share price.
being very well received by investors