Barclays rates Keywords 'overweight' in coverage launch

Barclays pinned an 'overweight' rating on Keywords Studios as the bank started coverage of the acquisitive video games developer.

Keywords carries out many functions in video games development on an outsourced basis, giving investors exposure to a growing industry without the hit risk of many games groups, Barclays said.

Outsourcing will be a bigger part of every games project as the industry matures and Keywords has advantages in scale, technology and reputation over its rivals, the bank's analysts said. Demand for video games has surged during the coronavirus pandemic.

Barclays initiated coverage with a target price of £29.50. Keywords shares rose 1.8% to £26.10 at 14:23 GMT.

Covid-19 has been a net headwind for Keywords in 2020 but Barclays predicted 10% growth. Barclays said if the games sector faces pressure as the crisis abates, Keywords' growth should speed up in 2021 as rivals face tough comparables.

Keywords agreed to buy US game development services provider High Voltage for as much as $50m on 15 December. It struck that deal three weeks after after agreeing to acquire Los Angeles-based g-Net Media for up to $32m.

"We believe M&A is a good thing for Keywords, and there will be plenty more. This strong story does not come cheap but we think the combination of underlying forecast momentum and M&A can maintain good share price performance," Barclays said.