Brief background on SUMO Group (LON: SUMO):
Sumo Group was started in 2003 and provides contracted game development services to other major gaming companies. As of last year, the company has also produced their own maiden AAA game. In Dec 2017, the company became a public company via an IPO.
FY Results
About a week ago, I mentioned in another article that Sumo Group was a gaming company that looked very promising and that FY results were due this week. Since then, results for the FY 2017 have been released by the company and the numbers are very encouraging.
The company made an underlying adjusted EBITDA of £8.5 million for the full year; up 38% YoY. The company is currently being valued at 21X earnings with a current valuation after today’s rise of £180m. Earnings multiples that are used for leading video game companies are generally high e.g Ubisoft is valued at 65X earnings, Electronic Arts – 31X, Take Two – 60X.
The reason for the high multiples is primarily because of the strength of the video game sector. The sector is one that is massively growing, and further opportunities for gamining will arise in the coming years in related fields such as virtual reality and robotics. There is no doubt in my mind that there will continue to be a demand for the foreseeable future for Sumo Group’s contracted game development services.
From reviewing the company’s FY release, the company’s balance sheet is now pretty solid after its IPO with £12m in cash currently sitting on the balance sheet. In addition, the company has acquired 2 new gaming studios in the past year that will contribute to future results. The SUMO Group will continue on its current strategy of contracted game development (that carries less associated risk), although the company did advise in its IPO prospectus that if the opportunity arises, they will also develop in house video games.
Another great thing about the release from yesterday was that the company’s CEO confirmed that even at this early stage, the company is predicting full year results to surpass market expectations and that the company is seeing strong demand for its services:
In his own words:
Carl Cavers, Chief Executive Officer of Sumo Group, said: “The new financial year ending 31 December 2018 has started strongly. Whilst it is still early in the year, the Board already expects to deliver full year results slightly ahead of market expectations. We are continuing to see strong demand for the Group’s services and are well placed to take advantage of the considerable opportunities.
Lastly, it is important to note that the current valuation of the company is not too far off the initial IPO price of 100p from December 2017 (current share price is 119p). The current price therefore offers a reasonable entry point into what I believe is a very promising gaming company.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views and should not be considered as advice.
