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Keywords Studios
Written by
Keywords Studios |
Strong 2015 trading; expect further acquisitions |
Trading update |
Software & comp services |
2 February 2016 |
Share price performance
Business description
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Analysts
Keywords Studios is a research client of Edison Investment Research Limited |
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Keywords has stated that it expects its full-year revenue and adjusted PBT numbers to come in “comfortably ahead” of consensus estimates. Having raised funds in November, the company also re-iterated its commitment to a buy-and-build strategy to complement its already solid organic growth. It is in advanced discussions to complete one or more deals and we expect an announcement could be made before the company delivers its full-year financials in April.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
16.2 |
2.4 |
5.4 |
4,221** |
53.7 |
N/A |
12/14 |
37.3 |
5.5 |
9.5 |
1.5 |
30.5 |
0.5 |
12/15e |
55.4 |
8.0 |
12.7 |
1.6 |
22.8 |
0.5 |
12/16e |
72.8 |
10.1 |
15.0 |
1.8 |
19.3 |
0.6 |
Note: *PBT and EPS are normalised, excluding acquired intangible amortisation, exceptional items and share-based payments but after exchange rate gains of €0.6m reported for H115. **Before IPO €0.6m total distribution.
Strong H2 trading – underpins existing forecasts
Keywords’ update indicates strong trading in H215, continuing the momentum that the company has built up over the last couple of years. The expected top line and PBT beat suggests it is successfully integrating the numerous acquisitions carried out in 2014/15 from both a cost-efficiency and a cross-sell driven revenue synergy perspective. We have updated our EPS and year-end net cash estimates to reflect November’s placing. We have left our revenue forecasts unchanged, but note the prevailing upside risks. We are planning to revisit our estimates when the company completes its next acquisition or on release of the company’s full year numbers in April, whichever is sooner.
Firepower to fund further M&A
Keywords’ issued 5.5 million new shares at 190p via a placing to new and existing shareholders in November 2015, raising £10.45m (gross). The funds were raised with the explicit intention of providing firepower for its stated buy-and-build strategy. While the company has yet to deploy the cash raised, it has stated that the M&A pipeline is strong with advanced discussions being held with more than one target company. Historically the company has funded its acquisitions with a mixture of cash and equity. We estimate that including November’s placing proceeds, Keywords ended 2015 with a net cash position of c €19m.
Valuation: Further M&A success is key
Keywords’ shares have performed strongly since its November placing, rising 17%, including yesterday’s positive reaction. The stock is trading on a 2016e P/E of 19.3x, broadly in line with localisation peers. However, given the company’s track record of attractively valued M&A and its changing business mix, we believe the valuation fails to recognise Keywords’ much stronger outlook. The stock should respond positively to the completion of further M&A deals at valuations comparable to historic deals.
Exhibit 1: Financial summary
€'000s |
2012 |
2013 |
2014 |
2015e |
2016e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
14,343 |
16,185 |
37,293 |
55,443 |
72,759 |
Cost of Sales |
(8,817) |
(10,722) |
(24,568) |
(35,600) |
(48,471) |
||
Gross Profit |
5,526 |
5,463 |
12,725 |
19,843 |
24,288 |
||
EBITDA |
|
|
3,013 |
2,691 |
6,027 |
8,477 |
11,482 |
Operating Profit (before amort. and except.) |
2,815 |
2,419 |
5,159 |
7,368 |
10,027 |
||
Intangible Amortisation |
0 |
0 |
(468) |
(700) |
(700) |
||
Exceptionals |
0 |
(1,124) |
(994) |
(1,200) |
0 |
||
Other |
0 |
(71) |
(156) |
0 |
0 |
||
Operating Profit |
2,815 |
1,224 |
3,541 |
5,468 |
9,327 |
||
Net Interest |
(76) |
(66) |
361 |
645 |
184 |
||
Profit Before Tax (norm) |
|
|
2,739 |
2,352 |
5,520 |
8,013 |
10,211 |
Profit Before Tax (FRS 3) |
|
|
2,739 |
1,158 |
3,902 |
6,113 |
9,511 |
Tax |
(411) |
(394) |
(1,215) |
(1,843) |
(2,042) |
||
Profit After Tax (norm) |
2,328 |
1,959 |
4,305 |
6,170 |
8,169 |
||
Profit After Tax (FRS 3) |
2,328 |
764 |
2,687 |
4,270 |
7,469 |
||
Average Number of Shares Outstanding (m) |
31.9 |
36.1 |
45.1 |
48.2 |
53.8 |
||
EPS - normalised (c) |
|
|
7.3 |
5.4 |
9.6 |
12.8 |
15.2 |
EPS - normalised and fully diluted (c) |
|
7.3 |
5.4 |
9.5 |
12.7 |
15.1 |
|
EPS - (IFRS) (c) |
|
|
7.3 |
2.1 |
6.0 |
8.9 |
13.9 |
Dividend per share (c) |
2,538.0 |
4,221.4 |
1.5 |
1.6 |
1.8 |
||
Gross Margin (%) |
38.5 |
33.8 |
34.1 |
35.8 |
33.4 |
||
EBITDA Margin (%) |
21.0 |
16.6 |
16.2 |
15.3 |
15.8 |
||
Operating Margin (before GW and except.) (%) |
19.6 |
14.9 |
13.8 |
13.3 |
13.8 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
490 |
600 |
21,251 |
47,537 |
45,708 |
Intangible Assets |
0 |
0 |
17,677 |
40,577 |
39,877 |
||
Tangible Assets |
490 |
600 |
2,761 |
4,147 |
5,020 |
||
Investments |
0 |
0 |
813 |
2,813 |
810 |
||
Current Assets |
|
|
6,702 |
18,218 |
23,120 |
31,865 |
42,184 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
1,397 |
1,303 |
6,203 |
6,835 |
8,970 |
||
Cash |
3,892 |
15,271 |
11,014 |
19,127 |
27,311 |
||
Other |
1,413 |
1,644 |
5,903 |
5,903 |
5,903 |
||
Current Liabilities |
|
|
(1,182) |
(1,025) |
(9,746) |
(10,240) |
(11,280) |
Creditors |
(1,182) |
(1,025) |
(9,746) |
(10,240) |
(11,280) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
0 |
(300) |
(2,607) |
(2,607) |
(2,607) |
Long term borrowings |
0 |
0 |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
(300) |
(2,607) |
(2,607) |
(2,607) |
||
Net Assets |
|
|
6,011 |
17,494 |
32,019 |
66,556 |
74,005 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
2,650 |
2,705 |
2,411 |
6,538 |
13,088 |
Net Interest |
(50) |
(59) |
11 |
645 |
184 |
||
Tax |
(749) |
(359) |
(522) |
(1,843) |
(2,042) |
||
Capex |
(391) |
(394) |
(1,252) |
(2,495) |
(2,328) |
||
Acquisitions/disposals |
(506) |
(13) |
(8,889) |
(7,278) |
0 |
||
Financing |
50 |
10,280 |
4,594 |
13,196 |
0 |
||
Dividends |
(375) |
(781) |
(609) |
(651) |
(717) |
||
Net Cash Flow |
629 |
11,378 |
(4,257) |
8,113 |
8,184 |
||
Opening net debt/(cash) |
|
|
(3,263) |
(3,892) |
(15,271) |
(11,014) |
(19,127) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
(0) |
0 |
(0) |
(0) |
(0) |
||
Closing net debt/(cash) |
|
|
(3,892) |
(15,271) |
(11,014) |
(19,127) |
(27,311) |
Source: Keywords Studios, Edison Investment Research
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