21st Sep 2022 18:00
(Alliance News) - Keywords Studios PLC warned about a growth slowdown over the period ahead, but analysts still believe it has a bright future.
The technical and creative services provider to the video game industry posted improved interim earnings, but warned growth will moderate.
Noting a more uncertain macroeconomic environment and the potential volatility in the scheduling of certain projects, it said organic growth rates in the second half are expected to moderate. It added that adjusted pretax profit margins moved to historic levels of 15% as Keywords invests in the business.
Nonetheless, the AIM listing still impressed analysts on Wednesday.
In the first half of 2022, Keywords Studios posted a pretax profit of EUR39.1 million, up 78% from EUR21.9 million in the same period a year prior, on revenue which grew 35% year-on-year to EUR321.1 million from EUR238.7 million.
Revenue growth was helped by sustained demand in all service lines, with the Create and Globalize units in particular benefiting from the current levels of content creation.
Hargreaves Lansdown analyst Derren Nathan commented: "As Keywords broadens its offer to the video games industry it continues to outperform the industry which in itself is not immune to wider economic pressures. But as a provider of 'picks and shovels', Keywords is not dependent on the success of individual blockbuster titles."
Demand for video games surged during the pandemic amid stay-at-home measures. Keywords was a beneficiary. Its shares surged almost 90% in 2020. Since the start of last year, however, shares have fallen 20%.
Shares ended 2.2% lower at 2,298.00 pence each in London on Wednesday.
Still, German bank Berenberg calls it a "must-own" video game stock.
"Keywords delivered very strong H1 results, with a bullish outlook statement and analyst presentation suggesting there is more good news to come. Organic growth momentum is the strongest it has been in many years, benefiting from robust demand backdrop and Keywords' ever-improving competitive position. With upward pressure on margins and a helpful [US dollar] tailwind, as well as significant M&A firepower, we believe there are further upgrades to come in 2022 and 2023. In our view, Keywords is a must-own in video games, particularly in a volatile macro environment," Berenberg said.
Keywords backed consensus expectations of annual sales of EUR642 million and an adjusted pretax profit of EUR102 million.
"This assumes management guidance that organic growth moderates to low-double-digit and margins fall to 15% in H2 2022, both of which we believe are conservative," Berenberg said.
"We also believe that 2023 guidance for 10% organic growth and 15% margins is very conservative, given the strong growth and margin dynamics at play."
By Eric Cunha; [email protected]
Copyright 2022 Alliance News Limited. All Rights Reserved.
Related Shares:
Keywords Studios Plc