Keywords saw strong revenue growth in H119 (17.5% l-f-l, 39% with acquisitions) to €153.2m, with accelerated investment in recruitment and training, together with the costs of early-stage investments and a one-off acquired project compressing operating margins to 12.6% from 15.5% last year. Adjusted PBT growth was 15% to €18.4m (H118: €16.0m). Net debt was €9m (vs €0.4m at end-2018), reflecting peak working capital commitments at the end of H1, higher capex for investment in new infrastructure (€5.1m vs €1.4m in H118) and €6.9m outflows on acquisitions (H118: €12.6m). The company’s new €100m debt facility (extendable to €140m) gives it plenty of headroom to continue its consolidation strategy. 

H2 trading has started well and progress in H1 gives us confidence that Keywords remains well placed to sustain robust double-digit organic growth trajectory; with increased capacity in place, we expect margins to normalise. The business is well balanced across service lines, geographies and game formats and benefits from an accelerating trend towards outsourcing. We upgrade our FY19 revenue estimates by 5.2% and FY20 by 4.3%, and although H1’s investment, together with a revision to the adjusted tax calculation, compresses FY19 earnings by 15.8%. FY20 EPS reduces by 2.5% as margins normalise on a higher sales figure. 

With its shares trading on a 2019e P/E of 28.9x that falls to 22.2x in 2020e, Keywords is trading in line with peers. However, we see scope for organic upside while further accretive acquisitions (such as the latest acquisition of TV Synchron in Berlin) should bring the 2020e P/E down, potentially to c 18–20x based on our assumptions. With strong underlying growth, we continue to believe sustained execution should drive robust returns for shareholders.