Berenberg raises target price on Keywords Studios

Analysts at Berenberg raised their target price on IT services management group Keywords Studios on Wednesday from 1,700.0p to 2,250.0p after the group's first-half numbers came in ahead of expectations amid an improving outlook.

Berenberg said Keywords Studios had delivered a "very strong" first-half trading update a day earlier, with growth and margins ahead of forecasts and a number of growth tailwinds.

With positive margin trends and bullish commentary on near-term mergers and acquisitions, the German bank said it remained positive on the stock despite a recent strong run in shares.

The analysts increased their 2020-22 pre-tax profits estimates increase by 17%, 4% and 5.3%, respectively mainly due to an upward revision of its bull-case organic growth and M&A scenario.

"KWS explicitly stated it expects to complete acquisitions over the coming months," said Berenberg. "If KWS deploys its £100m net cash position as at June on M&A over the next year, which is in line with historical multiples, it would increase our pro-forma FY 2021 PBT estimates by circa 20%."

Berenberg added that for 2021, Keywords trades on 20 times enterprise value to earnings before interest, tax, depreciation and amortisation, 15% below its three-year average, and 33 times its price-to-earnings ratio - in line with its three-year average.