Global game plan propels Keywords Studios to next level

(MENAFN- ProactiveInvestors - UK) As the computer gaming industry takes hold internationally it has become both technically and financially inefficient for developers to provide every services.

That has thrown up a big opportunity for companies such as Keywords Studios (LON:KWS) to fill in the gaps.

Big Business

Computer games are very big business. In case you don't know just how big global sales of computer games are expected to be around US$115bn by 2018.

Keywords Studios services are used by 21 of the top 25 games developers.

Established in 1998 and headquartered in Dublin it operates across Europe and Asia as well as from studios in Canada US and Brazil.

There are 120 permanent staff members flexing to over 1000 at peak times.

Most games are developed in English but sales are global and that has created a business in translating games into local languages.

Keywords specialises in these localisation servicesor the translation and cultural adaptation of video games across different platforms for international distribution.

Its regional studios provide voice over recordings script translation and actor selection in more than 15 countries and 30 languages.

It also provides localisation testing to ensure the adapted content fits the context of the game as well as functionality testing for in-game defects and console specifications compliance.

Its current model involves native language testers playing through localised versions of the games covering cultural linguistic and functionality aspects simultaneously.

Following a number of strategic acquisitions Keywords has also branched out into artwork creation for video games such as concept art and character animation.

The group has identified an increasing trend for games developers to outsource at these stages.

Cycle faster

Thus far the market for games has been heavily reliant on the console product cycle and the release schedule of the console makers Sony Microsoft's Xbox and Nintendo.

Traditionally game development has slowed in the run up to the release of the next generation consoles as software soon becomes irrelevant and outdated but that may be changing with the advent of the cloud.

Future Growth

Gaming is a fragmented market and Keywords has started to expand its range by bolt-on acquisitions.

From three service lines when it listed in 2014 it now has six.

These newer service lines such (as customer support and art creation) have made good contributions to overall revenue.

Further regional acquisition is one Keywords' routes to future growth.

"We are not forgetting our core business of translation and localisation testing. You should expect to see from us some acquisition activity fairly widely spread across the board" said Andrew Day chief executive.

The acquisitions of Reverb and Kite Team for example have given Keywords a presence in South America.

Asia-Pacific though accounts for three of the top four video games markets in the world.

PwC projects that it will be the fastest growing region increasing to $40bln in 2016 compared to $24bln in 2011.

The group is looking in particular to plug a geographic gap in China with existing customers already requesting support.

What's it worth?

In November 2015 Keyword's issued a placing of 5.5mln new shares at 190p to new and existing shareholders raising 10.45mln.

The proceeds were raised to go into its stated buy-and-build strategy with advanced negotiations currently underway on other targets.

Net cash at end 2015 was around 19mln.

Trading in 2015 was ahead of market forecasts due to a strong list of new games releases.

"2015 was a year in which the console game production and publishing cycle flourished and whilst it remains early in the year 2016 is showing signs of being another good year for the group with some early business wins and increasing levels of cross selling emerging from our global sales force' said Day.

Revenues of around 55.5mln in 2015 are forecast to rise by almost a third to 73mln according to research house Edison. Profits are expected to rise from 8mln to 10.1mln over the same period.

Edison said it earnings/share price rating is line with other companies doing similar but Keywords has a much stronger outlook.

Harold Evans analyst at finnCap expects more organic growth and strategic acquisitions to drive the company forward. At January 2016 the broker had a target price of 245p.