Berenberg raises target price on Keywords Studios

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.