Video games developer Sumo (SUMO) has benefited from the surge in gaming during the Covid-19 pandemic. Having launched seven games in the first half of the year – including four titles for which it owns the intellectual property (IP) – the group saw its adjusted cash profits (Ebitda) increase by 15 per cent year on year to £6m.
The margin did take a hit, contracting by 2.3 percentage points to 22.8 per cent. This was partly because revenue is only booked once contracts are officially signed and Sumo starts on some projects ahead of putting ink to paper. There was a particular project where agreement on final terms has been delayed by the pandemic. The margin was also squeezed by costs associated with the scrapped development of a sequel to its Snake Pass, game as well as higher than usual holiday pay accrual.
Most of Sumo’s revenue currently comes from IP it has developed for third parties, but it is aiming to move towards more of its own-IP projects. The group broadened its own-IP portfolio through the £0.5m purchase of work-for-hire development studio Lab42 in May. The deal has brought an exclusive licence to develop games for the ‘World Snooker Tour’ brand and a title was launched for Apple and Android devices in July. The studio has also signed two new contracts since being acquired.
Alongside its half-year numbers, Sumo has announced the upcoming acquisition of video games developer Pipeworks for an enterprise value of $100m (£77m). This will boost its footprint on the West Coast of the US and enable access to more clients. The transaction is expected to complete in October and “significantly enhance” earnings from next year.
The M&A hunt is not over. Sumo says that it is “actively pursuing a number of targets” and it raised £13m via a placing in July to support its efforts. This has hiked its net cash to £30m – from £13m at the start of the year – although once the Pipeworks deal goes through it is anticipating a small net debt position.
Sumo says it will deliver full-year adjusted cash profits at least in line with consensus market expectations. Peel Hunt has upgraded its forecasts and is currently pencilling in £14.1m for 2020, rising to £18.3m in 2021.
| SUMO (SUMO) | ||||
| ORD PRICE: | 212p | MARKET VALUE: | £ 328m | |
| TOUCH: | 211-215p | 12-MONTH HIGH: | 220p | LOW: 122p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 31 | |
| NET ASSET VALUE: | 38p* | NET CASH: | £30.3m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2019 | 20.8 | 1.25 | 0.51 | nil |
| 2020 | 26.3 | 2.78 | 2.11 | nil |
| % change | +27 | +122 | +314 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes £24.3m in intangible assets or 16p a share | ||||
