Berenberg lifts Keywords Studios target price after Gobo acquisition

Berenberg upped its price target on Keywords Studios to 2,150p from 2,060p on Tuesday, as it reiterated its 'buy' rating following the company's announced acquisition of Gobo Ltd and Electric Square, together Gobo, for £26m.

With Gobo expected to deliver around 15% organic growth and maintain high-20% EBIT margins, versus the Keywords group of circa 16%, Berenberg upped its earnings per share estimates by 1.0%- 6.5% for FY 2018-20 respectively.

Berenberg said the Gobo deal adds 170 developers to Keywords’ staff. Combined with the company's previous acquisitions of d3t, Sperasoft and GameSim, this grows its co-development staff by 38% to 610.

As a result, Keywords is establishing itself as a leading co-development player, despite entering the vertical only in May 2017, the bank said, adding that it expects M&A to continue to have a slight co-development and engineering focus in the near-term for two reasons.

"Firstly, we believe capacity those areas is relatively light versus the larger market opportunity, compared to the other verticals. Secondly, a core part of Keywords’ growth approach is to develop strategic outsource partnerships with its clients where it is embedded across multiple stages of, or the entire, game development cycle, providing a number of services."

At 1400 BST, the shares were up 4.8% to 1,898p.