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Sumo ticks up as it issues in-line update for 2018

The firm said results for the year were expected to be “at least” in line with expectations and would be announced on April 9

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Sumo Group PLC (LON:SUMO) shares ticked up on Monday morning after it issued an in-line trading update for 2018, while a number of end of year contracts wins underpinned its forecasts for 2019.

The firm, which provides creative and development services to the video game and entertainment industries, said results for the year were expected to be “at least” in line with expectations and would be announced on 9 April.

READ: Sumo Group acquires award-winning development studio The Chinese Room

The group also said it had ended the year on December 31 with a £3.7mln cash balance and 592 employees, up 103 on the year before as a string of acquisitions boosted its headcount.
Carl Cavers, chief executive of Sumo, said the company currently operated seven studios in three countries, with plans to operate another studio “in the near future”.

Cavers added that the firm was also seeing “many exciting opportunities” for growth in its core markets, which are currently served by its Sumo Digital and Atomhawk brands.

Broker reiterates ‘top pick’ rating

In a note to clients, analysts at broker Peel Hunt reiterated their rating on Sumo as a “sector top pick”, saying the next 12 months represented “an opportunity for investors to access a de-risked [free cash flow] yield”.

The broker said they viewed the company as attractive due to its “work for hire model”, which allowed for strong cash conversion without the “cyclicality” associated with publisher models.

With the US$130bn+ gaming industry currently forecast to grow with an 8% compound annual growth rate (CAGR), and gamers increasingly demanding higher quality content, the trend towards outsourcing to a specialist is accelerating, analysts said, with strategic partners such as Sumo becoming “invaluable”.

Peel Hunt also expected Sumo to leverage its position in a “fragmented landscape” and benefit from increased work, while at the same time making calculated decisions on new business opportunities such as self-published IPs, royalties and co-funded projects.

The broker has a 200p target price on Sumo, with an adjusted pre-tax profit forecast of £9.1mln for 2018, while also expecting an £11.9mln pre-tax profit for 2019.

In mid-morning trading Monday, Sumo shares were up 0.8% at 130.5p.

--Updates share price--

Quick facts: Sumo Group PLC

Price: 166.25 GBX

AIM:SUMO
Market: AIM
Market Cap: £250.37 m
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