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Keywords: gaming on growth

The computer gaming industry has disappointed investors in the past. Keywords Studios is a different proposition.

The retailer GAME went into administration in 2012. Even Eidos plc, developer of winners including Tomb Raider and Hitman, ultimately disappointed investors. Hardware manufacturers have also been and gone. However, throughout all of this, the industry has continued to grow and is today, by some measures, earning more than the film business.

clients in more than fifteen countries One company that I met recently, Keywords Studios, looks a great way to access this booming industry without the risks of game development or hardware manufacturing. Just as the desperados chasing the California gold rush mostly failed, while the purveyors of picks and shovels prospered, Keywords is thriving via the provision of a range of outsourced services to the games developers. Keywords joined AIM via IPO in the middle of 2013. Originally formed and headquartered in Ireland in 1998, the company today provides translation, audio, art design, test and user support services to game developer clients in more than fifteen countries. In an industry where development 6

profit before tax doubled from €2.4m to €5.1m cycles are typically measured in years, Keywords’ service means that companies need only bring in expertise when it is required. 2014 saw the revenue spread at the company widen as testing and audio service sales increased. Localisation (translation) remains the majority of revenues. The share of revenues derived from localisation is down significantly from the near-90% delivered in 2013 as other services have grown. The company has a strong position in its markets, servicing 20 of the top 25 games companies by revenue and seven of the ten largest mobile game developers. Keywords is thriving in its position as an outsourced supplier to a growing industry. Organic revenues increased by 23% in 2014. Contributions from four acquisitions made in 2014 meant that overall revenues increased by 130%. Adjusted profit before tax doubled from €2.4m to €5.1m. Despite spending €6.0m on acquisitions in the year, Keywords ended 2014 with net cash of €11.0m. The company has never had any debt.

Two more acquisitions were made post year-end. Alchemic Dream of Montreal was bought for a maximum of CAD$1.25m. Alchemic Dream delivers customer care services tailored to game communities, forums and social media channels. The second, smaller acquisition, was Reverb, a Brazilian Portuguese translation specialist. Reverb’s portfolio includes World of Warcraft and Magic: The Gathering. Management declared with results that trading in the first three months of 2015 was in-line with their expectations. According to my data, Keywords is forecast to deliver EPS for the current full year of €0.13. The industry expects further growth from console and particularly mobile gaming. Keywords has the balance sheet to continue to scale up and the market position to enjoy ongoing growth.

never had any debt Keywords Studios (LON:KWS) FOR Long-term growth industry Solid balance sheet AGAINST Short track record Acquisition integration risk Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£75m 124p:126p 16.5 0.7% 140p:167p

May 2015 AIM Prospector  
May 2015 AIM Prospector  

Featuring nine AIM-quoted companies: Christie Group, EMIS, Fairpoint, H&T, Keywords Studios, Miton Group, NAHL, SCISYS and Universe Group.