Berenberg raises Keywords Studios to 'buy'

Berenberg stated that since its downgrade to 'hold' at the start of 2021, Keywords' shares had pulled back by roughly 15%, which, when combined with its full-year 2021-22 underlying earnings estimates increasing by about 6% to reflect the "strong" exit growth rate into the 2021 trading year, means the firm's shares had actually de-rated by circa 20%.

While Berenberg acknowledged the stock was still not "cheap" on 27 times full-year 2021 enterprise value to earnings before interest and tax, the analysts stated they simply could not ignore the "very strong" operating momentum and likelihood for mergers and acquisitions which, in their view, will result in Keywords outperforming consensus estimates by as much as 15-30% in 2021-22.

"This bull-case scenario would put the shares on a more palatable 23x-17x FY 2021-22 EV/EBIT," said Berenberg, which also raised its target price on the stock from 2,890.0p to 3,110.0p.

"We expect Keywords' addressable market to outgrow the video game segment (at a 7% CAGR) as developers continue to outsource a larger percentage of the development cycle. We believe that Keywords' best-in-class end-to-end platform and geographical reach will allow it to capitalise on this growth in outsourced game development, organically win market share and thus outperform the market."