Good morning!

I didn't get involved in the RBG story last week but the comments have continued on Paul's thread from last Friday, visible here.

Onto today's updates:



Keywords Studios (LON:KWS)

  • Share price: 826.25p (+3.3%)
  • No. shares: 55.6m
  • Market cap: £459m

Acquisition

This international service provider to the video gaming industry continues to spread its wings, developing its presence in China and Indonesia via acquisition.

In theory, I like the sound of this company. It gets to take part in the growth of gaming worldwide without being overly reliant on the success or failure of individual titles as game publishers might be. Instead, it relies on its relationship with those publishers.

The services it provides can be broadly broken down into localisation (text/audio translation), testing and quality control.

It has undertaken a very large of number of small acquisitions, and today marks the continuation of that trend with a further $6 million being spent on this company (in a mix of cash, deferred cash and deferred shares).

Management of the target will stick around, which is good, and it sounds like it might be decent value against $0.9 million in PBT at the target last year.

CEO comment:

"The acquisition of Red Hot further strengthens our fast growing, higher margin art services business, enhancing our unique client proposition which combines operations close to our clients, in the US and Canada, with those in lower cost locations across Asia. Following the acquisition, we believe the Keywords Art Service Line is the leading player in the outsourced market in terms of capacity and breadth of service."

I wonder if art services is a good place to be from an investor point of view - it sounds perhaps quite labour-intensive.

Red Hot has 220 artists in its employ, so this deal values the company at $27k per artist.

Granted that the salaries in its 2nd/3rd-tier Chinese cities will be lower than typical Western salaries, that still seems to be a rather low valuation per skilled employee.

So I would have a little bit of concern in terms of whether this is an attractive segment to be from the point of view of 3rd-party investors. However, it could be the case that art services are highly complementary to the rest of the services…

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