Keywords Studios Plc Regulatory News (KWS)

London, UK, 2 March 2021

Keywords Studios (KWS): Looking like a winner as the dust settles

Buoyed by exceptional demand for games during lockdown and boosted by the start of the console transition, the global games industry showed year-on-year growth of 20% in FY20 (Newzoo). Benefiting from increased industry development spending and the growth in new releases, Keywords delivered underlying organic revenue growth of 12%, with FY20 revenues rising 14% y-o-y. Assuming no worsening impact from COVID-19, FY21 looks set to be a more settled year. With publishers launching increasing numbers of new titles to address a growing next-gen console base in FY21-23, demand for Keywords' services should continue to build in the short to medium term. The outlook for Keywords appears positive and, with net cash of c €100m (plus €100m of undrawn facilities), Keywords remains well placed to participate in earnings-enhancing M&A.

Keywords' shares trade on an FY21e P/E of 38.9x, falling to 34.5x in FY22e, in line with its UK games industry peers. Although this is a demanding valuation, we expect the recent next-gen console launches to lead to a period of heightened game releases, benefiting underlying demand in the period FY21-23e. When complemented by Keywords' proven accretive buy-and-build strategy, this should further reduce valuation multiples. 

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