Keywords Studios Share Discussion Threads

[rivaldo] 27/9/2018 08:48

Nice £965,000 buy at 1930p just now.....

[glaws2] 20/9/2018 14:20

Just watched the PIworld presentation - whilst they have a 'challenging' H2 to deliver about 20% organic growth to meet their targets they were confident.

As always great insights by an excellent CEO.

[shanklin] 20/9/2018 14:09

rivaldo

The H1 results presentation on piworld covers all these points; nice to see them make the press.

[rivaldo] 20/9/2018 13:58

Great interview with Andrew Day - confirming that KWS still have more than €100m to spend on acquisitions:



"Game firm Keywords Studios has €100m to fuel acquisition spree

Irish company also looking at increasing its office space in Dublin
September 19 2018 2:30 AM

Irish video-game company Keywords Studios has more than €100m available to spend on acquisitions, according to the group's chief executive Andrew Day.

Speaking to the Irish Independent he said that analysts assume that the group will spend between €40m and €60m a year on acquisitions.

"This is a reasonable assumption unless we buy something bigger, and yes we have the firepower for this, we have a €105m bank facility," Mr Day said.

So far this year the group has made eight acquisitions, and looking forward it said that it was "selectively reviewing a strong acquisition pipeline".

Deals are being bolted on so that Keywords can offer the same mix of technology services to the gaming sector in all of the markets where it operates.

"The [acquisition] programme will be continuing into the future, due to the fragmented market place," Andrew Day said

"This makes sense as a lot of our clients are global, we are operating in 20 odd countries, we have done a lot of geographic expansion but we put don't provide full suite of services in all those countries, so there are always more opportunities [for acquisitions]," Mr Day said....

....Looking forward, the group said that technology and internet bandwidth improvements could enable streaming of video games for the first time which it believes will drive record demand for gaming content....

....Behind that acquisition spree is Keywords' view that it can tap into a reorientation of the games market around interactive streaming of content.

That mirrors the change companies like Netflix have experienced in the video market."

And another interview here:



"Mr Day said: “We have a pipeline of acquisition opportunities which we expect to develop. We will be investing in our audio business and will have a look at art production next year.”

Many of the recent purchases have been businesses based in the UK. Mr Day said this is because the UK is a market with a large talent pool, and is also relatively cheap compared with the US."

[rivaldo] 20/9/2018 08:37

A good mention of Peel Hunt's Buy rec here:



"Keyword Studios poised to corner market, says Peel Hunt

Keywords Studios (KWS), provider of technical services to the video games industry, is positioned to corner the market, says Peel Hunt.

Analyst Ashu Sony retained his ‘add’ recommendation and target price of £21 on the stock after a ‘strong first half’. The shares were trading at £19.18.

‘We believe it is attractively positioned to corner the market through its established market-leading position and blue chip client base, significant cross-selling opportunity, and an unmatched record of value-accretive mergers and acquisitions,’ he said."

[1670127] 19/9/2018 09:42

@phowdo - Certainly games development would provide significant revenue boost but it is not without risks for a Games Services company. If you are Warner Bros would you give Keywords your IP to QA if you know that they are also developing a game, in the same genre, for Eidos? This has always been a no-go because of this and could kill thier services business. Games porting is certainly an area where developers can be used but a lot of the games engines now support this, somewhat seamlessly (although that really never happens without additional work!)

[1670127] 19/9/2018 09:36

That number sounds plausible. The games services companies have always used the comparison to the film industry as their model to show high levels of businesses. There are some similarities as the need for flexible resources during parts of the development cycle mean on-boarding and off-boarding resources, which is expensive and time consuming. That said, for the larger games companies where there is consistent work, 12 months of the year, we have over the past couple of years seen an increasing number looking to bring the work in-house where they have the ultimate control of quality and security of their IP. Still leaves a large market for the games services companies to go after but doubt they will ever get to the 90% in films where locations for shooting could be in many different places for a few weeks/days at a time.

[shanklin] 19/9/2018 09:24

Slide 3 of yesterday's results presentation states "We estimate the service market to be worth $6Bn in total with 50% of that outsourced today. In film and TV, 90% of production is outsourced"

[phowdo] 19/9/2018 09:04

I'd estimate Game services (testing, audio, localisation, off the shelf art-content) is globally about $1.5B
That includes a lot of tiny companies/contractors/freelancers especially on the mobile side.

To maintain the level of growth they will have to branch into complete game development such as with recently acquired GOBO
There's a lot of competition in that sector and its higher risk. Plenty of these type of developers have gone to the wall in the past eg AGT, WHOG.
You might want to research how 3rd party gamedev companies do in console cycle transitions.
Essentially KWS will be going from "picks and shovels" to "digging and operating the mines". That changes the risk profile.


As for cornering the market, no-one in business wants to see a monopoly/oligopoly form in their supply chain. At the moment power exists with the publishers. If they see that balance of power shift (by being squeezed on price say) they'll just take the outsourcing back in-house.

[scooper72] 19/9/2018 08:47

That last post was meant to be in response to 167...

[scooper72] 19/9/2018 08:41

On your question about how the big players will respond to KWS cornering too much of the services market. I understood that they actually appreciated having a one stop shop that they could rely on for a range of different needs when in development. Also from another angle. Although KWS is buying up there smaller players, perhaps something that will also be a factor is how much they are all able to maintain their identity and USP as a service whether they are coders or designers etc

[scooper72] 19/9/2018 08:26

1400 seems a bit out of date?

[rivaldo] 19/9/2018 08:20

Citigroup today say Buy and massively increase their target price to 2150p (from 1400p):

[shanklin] 19/9/2018 08:00

1670127

Good question. I am relieved to see rivaldo has provided the answer.

[rivaldo] 18/9/2018 23:36

Comments here from both Berenberg and Peel Hunt today - good to see Berenberg's confidence that KWS will "at least" meet forecasts:

"Keywords Studios looks confident ahead of a busy second half, during which the provider of technical services to the videogame industry should hit Berenberg's full-year forecasts, the investment bank says. As the company grows its portfolio with the acquisition of The TrailerFarm, it has also invested in expanding organic capacity, Berenberg says. "This demand-induced increase in capacity going into one of the most congested game-release schedules in recent years--coupled with six months' contribution from 1H acquisitions and a strengthening U.S. dollar--gives us confidence that Keywords will at least meet our full-year forecasts," Berenberg says"

"Keywords Studios is well-positioned to corner the market in outsourced technical services to the videogames industry, Peel Hunt says, after the company posted soaring first-half pretax profit on an acquisitions-fueled revenue boost. Keywords already has a leading position in that sector, with an 8% market share, and disposes of a blue-chip client base, the brokerage says. On top of that, Keywords has an unmatched record of value-accretive acquisitions, which gives it significant cross-selling opportunity, says Peel Hunt."

[1670127] 18/9/2018 17:12

@Shanklin ... do you have the figure for games services? This is the market that KWS is in? I suspect that they probably now have 25%+ market share. Not a monopoly but certainly the biggest by far. The biggest provider a year ago was Keywords followed by VMC. I know that management at Keywords were concerned as to where they would get organic growth from once they took over VMC as they had been winning business from them due to lower pricing. The 8% growth prior to currency adjustment is Ok. However it is a HUGE drop from the previous organic growth rates that KWS has pushed at every shareholder event in the past. The acquisitions are much smaller this year so the rate of growth next year, especially with a much higher revenue base, is going to drop significantly. Whether that growth justifies the current P/E ratings is the question and I don't have the answer to that. The question is whether there are more companies that can be acquired, with large enough revenues, to keep up the growth rates, on the evidence of the ones that have gone through this year that is looking unlikely, but who knows perhaps they acquire Testronics or Pole to win next which would give them a boost. Companies with the P/E ratings that KWS have normally show significant double digit growth on their existing business. I don't hold any shares in KWS, I am not looking to buy any shares in KWS and I am not short in KWS but I do have industry expertise.

[scooper72] 18/9/2018 16:37

Evening Standard has big pic of Call of Duty 2 describing KWS as one of the developers and a little paragraph about doubling first half profits, the new acquisition in Brighton and says that analysts blame the drop in the first half of the day on profit takers.

[tomps2] 18/9/2018 16:15

Keywords Studios (KWS) H1 results presentation 18.9.18

Andrew Day, CEO, & David Broderick, CFO, present KWS H1 results to 30th June 18, at the analyst presentation on 18th September 2018.



Andrew Day, CEO

Achievements in 2018 so far - 00:25
The video games market - 06:28
KWS – video games lifecyle - 08:50
KWS revenue by services - 09:41
KWS geographic spread - 11:00
KWS clients - 12:03
KWS diversified growth - 13:22

David Broderick, CFO

Financial overview - 14:33
H2 guidance - 22:01

Andrew Day, CEO

Delivering on strategy - 23:14
Performance by service line - 25:25
KWS growth opportunities - 30:19
Acquisition strategy - 36:48
Managing growth - 38:21
Outlook - 40:22
Investment summary - 42:55

Q&A – 43:30

[rivaldo] 18/9/2018 13:20

Numis say Buy today, with 2420p target:

[shanklin] 18/9/2018 13:12

Video Industry $100Bn+, KWS 2018 turnover circa $300m.

Less than 0.3% of global turnover does not seem overly dominant.

[scooper72] 18/9/2018 12:23

Well looks like despite the comments earlier, about an apparent reluctance by big game producers to want to work with KWS, and their concern about a company that has successfully consolidated the services they need to provide them with more efficiency, people are nevertheless happy to hold today.

[rivaldo] 18/9/2018 09:44

Organic growth is up a very nice 8.6% prior to currency movements, so no idea where you get the "virtually no growth" from.

Andrew Day sees a continuing growth in outsourcing as well as the below:

"We are seeing growing demand for co-development and full game development services as well as the continued trend towards outsourcing more broadly and we look forward to a strong second half to the year and to the opportunities this demand presents in the longer term."

Are the big games companies going to entrust decent-sized work to start-ups rather than the likes of KWS, not only in terms of talent but also given the ease of outsourcing to a one-stop shop? Seems unlikely to me :o))

[phowdo] 18/9/2018 09:27

Agreed with above.
The likes of EA,ATVI,UBI wont actually want to see one dominant player in the outsource space. Its far better for them to have a ecosystem of smaller companies that they can farm out work to as and when.

[1670127] 18/9/2018 09:15

So the results don't look great. Virtually no growth outside of the acquisitions with very high P/E ratings compare to peers. The current share price can only be justified by the message that Andrew Day has been stressing, buy companies and up-sell other services within the Keywords portfolio. At some point this stops being the case as you already work with all the major games developers. The market is also starting to adjust to a single dominate player in the games services space, they want a diversified supplier base and are looking at moving work to other vendors. Other companies are moving into the places where Keywords have acquired the competition. In Montreal in the past 12 months there have been at least 3 games services companies set up facilities there after Keywords acquired the competition. To me this is a strong sell unless they can get the organic growth issues resolved.