MIDAS SHARE TIPS: Translator is the last word in the video game market - but not for Keywords Studios

• e-mail

In 1998, an Italian translator and her husband started a business in Dublin, translating documents for Microsoft and other software giants. 

As both were passionate about video games, they shifted the business steadily towards that field, translating games into a multitude of languages for top producers around the world.

The company, Keywords Studios, listed on AIM in July 2013 at 123p. Now 153p, the shares have real potential. The directors are ambitious, the video games market is growing fast and the group even pays a dividend.

Boost: Key words’ turnover is being driven by games used on mobile devices

Keywords is run by Andrew Day, who has spent more than 30 years in business, latterly at New York Stock Exchange-listed data group FICO. 

Having known the founders, Giorgio Guastalla and Teresa Luppino, for years, he joined as chief executive in 2009 with a five-year plan to expand, professionalise and list the business. So far, the group has done everything it set out to do, expanding into new countries and new market areas, both organically and through acquisition.

Video games were once exclusively played using expensive consoles, such as the Xbox and PlayStation. Today, they are increasingly played on mobile phones, so the number of ‘gamers’ has grown by leaps and bounds.

Last year, for example, video games generated revenues of more than £50billion. That is forecast to grow to at least £70billion by 2017. Because consoles are pricey, they tend to be used primarily in the West and Japan, so their games are translated into about ten languages. Mobile games are translated into up to 50 languages.

Keywords is the leading player in this field, translating such well-known games as Candy Crush and Clash of Clans and making sure translations really make sense in different languages and locations. 

The task is ­complex as top games can have more than 500,000 words in them, five times as many as the average novel.

In recent years, Keywords has moved into other areas too. It provides customer support for game producers, it tests games to make sure they work properly and it has branched into art creation, helping with the graphics behind games, from cityscapes to leading personalities in games.

Changes: Video games were once exclusively played using expensive consoles, such as the Xbox and PlayStation

In days gone by, these would take about 20 days to produce. Now, as graphics become increasingly well-defined even on mobile phones, characters can take 40 days or longer to create and games producers are outsourcing more and more of this work.

Last week, Day unveiled impressive figures for 2014, Keywords’ first full year as a listed business. Revenue rose 130 per cent to €37.3million (£27million), profit before tax doubled from €2.5million to €5.1million and the dividend rose 10 per cent to 1.1p. 

Analysts expect profits of at least €7.5million for this year, with a dividend of 1.2p, rising to €8.4million and 1.3p respectively in 2016.

Keywords’ clients include the top ten games producers in the world, which account for more than a third of global revenues. 

Headquartered in Dublin and listed in London, the group operates in more than 15 countries. Opportunities for organic growth are strong and the company also expects to expand through acquisition.

Day is keen to build Keywords into a company with revenues of at least €200million over the next five years and he is motivated to deliver, as he owns 11 per cent of the business.

Midas verdict: Video gaming is a huge market and the games are increasingly played by men and women of all ages. Keywords is neatly positioned to benefit as the sector expands and, at 153p, the shares appear to be undervalued. Buy.