Press play on Sumo

These projected trends are excellent news for Sumo Group (SUMO), which develops video games for blue-chip publishers including Sega, Sony and Microsoft. Shares in Sheffield-based Sumo were only floated in December 2017, but it has already shown its ability to capitalise on the opportunities at hand. Its first set of results exceeded City analysts’ expectations for both revenues and adjusted cash profits, and broker Zeus Capital expects a market-trouncing revenue growth rate of 23 per cent to 2020.  

Sumo’s gross sales for 2017 reached £30.6m – up 27 per cent year on year – but this includes so-called 'pass-through' revenue on which it doesn’t make a profit. Our table shows Zeus’s ‘core’ numbers, excluding this nil-margin revenue and offering a truer representation of the company’s (still impressive) growth trajectory. Additionally, Sumo listed just 10 days prior to its financial year-end, having previously been majority-owned by private equity firm Berwyn. Thus, 2017’s numbers exclude items such as pre-flotation restructuring costs.

That said, Sumo’s maiden results lay the foundations for continued organic sales momentum, and the potential for earnings-enhancing acquisitions, although those can bring risks as well as rewards. Then there is excellent revenue visibility; contracts can sometimes last four years, reducing Sumo's exposure to the volatile cycle of games releases. 

Sumo’s main digital business comprises 96 per cent of group revenue, and offers a full suite of development services – from the initial game concept, through to production, all the way to post-release support. Most games are developed for publisher clients, but Sumo also launched its first own-intellectual-property (IP) game last year – Snake Pass – generating revenues of £1.7m. ‘Own-IP’ will remain a minor activity but, encouragingly, Snake Pass reached number one on the Nintendo e-shop charts in Europe.

Meanwhile, Sumo bought Atomhawk for £2.9m last June. The visual design company contributed £1.3m to full-year sales, and provides a “useful template” for future purchases that complement Sumo’s aims. Atomhawk also earned its keep further down the income statement, generating £0.4m in cash profits. Total cash profits rose 38 per cent to £8.4m.

True, reported pre-tax losses widened considerably from £2.1m to £28m. But most of that was from a one-off charge, reflecting a change in the way that Sumo accounts for intangible assets, lifting amortisation charges from £1.7m to £27.6m.