Berenberg ups Keywords Studios to 'buy'
Analysts at Berenberg raised their target price on video games industry outsourcer Keywords Studios from 1,400p to 1,700p and upped its rating on the firm from 'hold' to 'buy' on Tuesday, saying it was time to back a "multi-year winner".
Berenberg noted that 2019 was "a year of investment" for Keywords and while the spending put pressure on margins and earnings delivery in the near term, the analysts said they had always argued that Keywords was a multi-year winner.
The German bank highlighted that Keywords had delivered 15% organic growth in 2019, something it called "a very strong result" in what was a relatively weak year in terms of development for the games industry.
"Looking to 2020, the launch of the next-generation consoles and further development of streaming platforms, which we anticipate will drive an industry-wide acceleration in content generation and increased development spend, provide a strong demand backdrop," said Berenberg.
"Coupled with its significant increase in capacity during 2019, this means Keywords is well placed to deliver material growth in 2020 and beyond."
As a result, Berenberg said it was now time for a re-evaluation. With a very strong growth outlook, margin expectations sufficiently rebased and M&A likely to increase in the coming months, Berenberg also said it felt Keywords' outlook was "robust".
"We increase our FY 2020-22 EPS estimates by c5% as a result. With its valuation materially below historical levels and attractive versus its growth profile, we upgrade Keywords to 'buy'," said Berenberg.