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Sumo levels up on “unusually” high earnings visibility for 2019

The company recorded an adjusted pre-tax profit of £9mln for the year, 20.2% higher than the prior year, while adjusted revenues climbed 35.3% to £38.7mln

Video game player
Sumo provides creative and development services to the video game and entertainment industries

Sumo Group PLC (LON:SUMO) shares jumped in early deals on Tuesday after the group reported "unusually high" earnings visibility for its new fiscal year.

In an outlook statement alongside its maiden full-year results since listing on AIM in March 2018, Sumo’s chief executive Carl Cavers said the firm’s earnings visibility for the new fiscal year was “unusually high” with 88% of its forecast 2019 development fees already contracted or near contracted.

He added that the company’s business development pipeline was “very healthy” and that trading for the first part of the new fiscal year was in line with expectations.

In its results for the year ended 31 December 2018, the company, which provides creative and development services to the video game and entertainment industries, recorded an adjusted pre-tax profit of £9mln, 20.2% higher than the prior year, while adjusted revenues climbed 35.3% to £38.7mln.

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

The profit figure was more or less in line with predictions from broker Peel Hunt, who had forecast adjusted pre-tax profits of £9.1mln back in January.

In its 2018 highlights, the group included two titles under development for Apple Arcade, Apple Inc’s (NASDAQ:AAPL) game subscription service, which it had secured in December as well as new clients signed at the end of the year that were currently undisclosed.

Apple Arcade, which was unveiled by the tech giant in March, will feature over 100 new and exclusive games as the firm looks to break into the video game market and challenge established players like Sony and Nintendo.

Broker upgrades to ‘hold’, says shares have “significantly underperformed” in the sector

In a note to clients, analysts at broker Liberum upgraded Sumo to ‘hold’ from ‘sell’ and upped their target price to 145p from 120p, saying the 88% visibility for 2019 “materially” reduced the risks around forecasts.

The broker also said that the two new titles Sumo was currently developing for Apple Arcade showed the opportunity from its own-IP offering and that Sumo’s shares had “significantly underperformed” in the sector and were at a 10% discount over the last six weeks.

COO joins the board as director

In a separate announcement, Sumo said Paul Porter, a co-founder of the company who became its current chief operating officer (COO) on 1 April, would be appointed to the board as a director.

Ken Beaty, Sumo’s chairman, said the COO's position on the board was “an important part” of a new structure of the business that was designed to “accommodate further successful expansion”.

“I have worked with Paul at Sumo Digital since late 2014 and know that his profound industry knowledge and considerable expertise will further strengthen our executive team.”

Shares were up 1.4% at 145p.

Quick facts: Sumo Group PLC

Price: 167.25 GBX

AIM:SUMO
Market: AIM
Market Cap: £251.88 m
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