Keywords Studios (LON:KWS) has built an enviable position of strength, servicing a global games market expected to sustain 10% growth. Pockets of volatility, possibly related to the dramatic success of Fortnite create some near-term uncertainty, but we believe company’s strength of model and customer diversity will continue to enable the group to outgrow the games market in the medium to long term. At 36x FY19e earnings, strong growth is priced in, but continued execution should drive positive shareholder returns.
Robust fundamentals, some near term uncertainty
Interim results were as flagged at the trading update, with revenues growing by 72% to €110m and PBT by 67% to €16m. Like-for-like revenue growth was 8.6% (constant currency) down from 17.2% last year, with pockets of volatility (possibly relating to the dramatic success of Fortnite) a potential dampening factor. Trading has been strong thus far in H2, but we implement a precautionary nudge down to our FY18 revenues to reflect this. Underlying earnings estimates are little changed, however, and we believe the company’s model strength and customer diversity will continue to allow it to outgrow the games market in the medium to long term.
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