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Keywords has taken a step into the games analytics market with the acquisition of Yokozuna Data (YD) for $1.5m. This follows the recent engineering acquisition of Snowed In (for C$4.5m) and the establishment of Keywords Ventures. We do not expect these developments to have a material effect on our forecasts in the near term, but they do highlight the company’s investment in building higher value-added, IP-based business lines. Given Keyword’s strong coverage of the gaming supply chain, we believe the business is well placed to gain leverage from these investments.
Written by
Keywords Studios |
Investing in higher value-added services |
Acquisition and round up |
Software & comp services |
24 July 2018 |
Share price performance
Business description
Next events
Analysts
Keywords Studios is a research client of Edison Investment Research Limited |
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Keywords has taken a step into the games analytics market with the acquisition of Yokozuna Data (YD) for $1.5m. This follows the recent engineering acquisition of Snowed In (for C$4.5m) and the establishment of Keywords Ventures. We do not expect these developments to have a material effect on our forecasts in the near term, but they do highlight the company’s investment in building higher value-added, IP-based business lines. Given Keyword’s strong coverage of the gaming supply chain, we believe the business is well placed to gain leverage from these investments.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
96.6 |
14.9 |
20.3 |
1.3 |
100.9 |
0.07 |
12/17 |
151.4 |
23.0 |
29.9 |
1.5 |
68.3 |
0.08 |
12/18e |
252.3 |
37.3 |
47.7 |
1.6 |
42.9 |
0.09 |
12/19e |
283.3 |
42.5 |
52.8 |
1.8 |
38.7 |
0.10 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
YD adds analytics capability
Keywords has made its long-mooted entry into games analytics with the acquisition of YD. Over the past three years YD has developed a range of self-learning, predictive analytic models drawing on AI and machine-learning technologies to improve the monetisation and the user experience of games. It does this through analysing large quantities of data and delivering real-time predictions to help developers reduce player attrition, maximise conversion, increase average spend and enhance the overall gaming experience. The business is pre-revenue but on the cusp of commercial roll-out. Keywords is paying $1.5m cash to buy the business from Silicon Studio Corp, a Japanese games and middleware developer, which will collaborate with Keywords for commercialisation in the Japanese market and retain rights to deploy the technology outside of the games industry.
Investing into higher value-added services
While small, along with the recent establishment of Keywords Ventures this deal highlights Keyword’s initiative to invest in higher value-added, IP-based businesses. The company has demonstrated its ability to leverage its platform to accelerate the growth of acquired companies and we believe this leverage should be equally strong for these earlier-stage businesses, although the commercialisation process is likely to take longer.
Valuation: Investing for the longer term
We do not expect these developments to have a material impact on our estimates and we leave them unchanged. The 38.7x FY19e P/E clearly prices in continued strong progress, but acquisitions and organic upside can bring this down substantially. Over the past five years, Keywords has generated revenue and EPS CAGR of 77% and 53% respectively. We believe that sustained execution should continue to deliver shareholder returns.
Exhibit 1: Financial summary
€'000s |
2016 |
2017 |
2018e |
2019e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
96,585 |
151,430 |
252,254 |
283,276 |
Cost of Sales |
(59,907) |
(96,345) |
(161,749) |
(181,812) |
||
Gross Profit (inc multimedia tax credits) |
36,678 |
55,085 |
90,505 |
101,464 |
||
EBITDA |
|
|
16,893 |
26,645 |
43,249 |
49,134 |
Operating Profit (before amort. and except.) |
|
|
15,090 |
23,915 |
38,389 |
43,676 |
Intangible Amortisation |
(1,629) |
(3,038) |
(4,000) |
(4,400) |
||
Exceptionals |
(1,316) |
(3,016) |
(2,784) |
0 |
||
Other |
(686) |
(1,426) |
(1,854) |
(2,410) |
||
Operating Profit |
11,459 |
16,435 |
29,751 |
36,866 |
||
Net Interest |
(287) |
(872) |
(1,047) |
(1,172) |
||
FOREX |
(1,737) |
(3,569) |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
14,864 |
23,043 |
37,342 |
42,504 |
Profit Before Tax (FRS 3) |
|
|
9,435 |
11,994 |
28,704 |
35,694 |
Tax |
(3,223) |
(4,731) |
(7,394) |
(8,076) |
||
Profit After Tax (norm) |
11,641 |
18,312 |
29,948 |
34,428 |
||
Profit After Tax (FRS 3) |
6,212 |
7,263 |
21,310 |
27,618 |
||
Average Number of Shares Outstanding (m) |
55.9 |
58.7 |
62.4 |
63.9 |
||
EPS |
|
|
20.9 |
31.2 |
48.0 |
53.9 |
EPS - normalised (c) |
|
|
20.3 |
29.9 |
47.7 |
52.8 |
EPS - (IFRS) (c) |
|
|
11.2 |
12.4 |
34.2 |
43.2 |
Dividend per share (p) |
1.33 |
1.46 |
1.61 |
1.77 |
||
Gross Margin (%) |
38.0% |
36.4% |
35.9% |
35.8% |
||
EBITDA Margin (%) |
17.5% |
17.6% |
17.1% |
17.3% |
||
Operating Margin (before GW and except.) (%) |
15.6% |
15.8% |
15.2% |
15.4% |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
61,873 |
143,872 |
153,084 |
153,047 |
Intangible Assets |
55,495 |
132,555 |
140,061 |
139,119 |
||
Tangible Assets |
5,498 |
10,111 |
11,817 |
12,722 |
||
Investments |
880 |
1,206 |
1,206 |
1,206 |
||
Current Assets |
|
|
38,677 |
80,182 |
96,823 |
120,231 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
13,879 |
27,473 |
36,053 |
39,659 |
||
Cash |
17,020 |
30,374 |
38,435 |
58,237 |
||
Other |
7,778 |
22,335 |
22,335 |
22,335 |
||
Current Liabilities |
|
|
(27,830) |
(52,503) |
(47,466) |
(43,515) |
Creditors |
(19,805) |
(33,560) |
(28,523) |
(24,572) |
||
Short term borrowings |
(8,025) |
(18,943) |
(18,943) |
(18,943) |
||
Long Term Liabilities |
|
|
(6,016) |
(10,420) |
(10,365) |
(10,365) |
Long term borrowings |
(345) |
(337) |
(337) |
(337) |
||
Other long term liabilities |
(5,671) |
(10,083) |
(10,028) |
(10,028) |
||
Net Assets |
|
|
66,704 |
161,131 |
192,076 |
219,398 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
17,168 |
18,373 |
36,434 |
40,390 |
Net Interest |
(58) |
(253) |
(1,047) |
(1,172) |
||
Tax |
(2,129) |
(4,731) |
(7,394) |
(8,076) |
||
Capex |
(2,306) |
(3,803) |
(6,121) |
(6,364) |
||
Acquisitions/disposals |
(21,104) |
(87,074) |
(12,784) |
(3,842) |
||
Financing |
643 |
82,936 |
0 |
0 |
||
Dividends |
(825) |
(867) |
(1,026) |
(1,134) |
||
Net Cash Flow |
(8,611) |
4,581 |
8,062 |
19,802 |
||
Opening net debt/(cash) |
|
|
(17,284) |
(8,650) |
(11,094) |
(19,155) |
Forex gain on cash |
1 |
(1) |
0 |
0 |
||
Other |
(24) |
(2,136) |
(1) |
0 |
||
Closing net debt/(cash) |
|
|
(8,650) |
(11,094) |
(19,155) |
(38,957) |
Source: Company data, Edison Investment Research
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