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Sumo on the 'cusp of something special' as video games boom

Sumo has worked for some of the biggest names in the video games space as co-development partner and turnkey developer

If you think people stop playing video games when they exit their teens, think again says Carl Cavers, chief executive of Sumo Group PLC (LON:SUMO).

The average age of a gamer is now nudging 35, he told Proactive, which is great news for the industry (and Sumo).

WATCH: Underlying trading is great says video games group Sumo Group

“People don’t start playing as they get older, the audience and markets just get bigger.”

Video games are a growth market, he adds, with the sector overall expected to grow by 8% year-on-year until 2021.

Sumo is a games developer and has worked for some of the biggest names in the space such as Sony, Microsoft, Sega, Activision and others.

Fee-based creative services account for 90% of its revenues with visual design group Atomhawk the remainder.

Underlying trading for the group, which listed on AIM in December, was very good in 2017 said Cavers and the group will look to use its listing as a springboard to buy and build.

Newcastle adds VR experience

A recent acquisition in Newcastle brought in 34 developers with virtual reality experience and that type of deal will be the model going forward, says Cavers.

Businesses that bring a complementary set of services to Sumo or Atomhawk. An owner managed business would be ideal, he adds.

Ed Stacey, at research house Capital Networks, believes Sumo has scope to be rated more in line with gaming company peers listed in London.

Companies in the video games space tend to command high valuation multiples due to the growth dynamics of the industry, said Stacey, who adds Sumo has strong growth prospects, a limited risk business model, and strong cash-flows.

Revenues are growing at 40%, with the scope to boost that rate of growth even more by acquisitions

Sumo Group earns developer fees that are not contingent on the commercial performance of the game and that makes for good cashflow.

Revenues rising

Stacey sees revenues rising 30% in 2018 to £37.1mln (£28.6mln) and to £48.1m in the following year.

Earnings per share are forecast to rise 17% to 4.9p (4.2p) and 6.5p over a similar period.

Cavers, too, believes there is a lot of opportunity.

“We are on the cusp of something really good, both for Sumo and the sector overall.”

At 136p, Sumo is valued at £196mln.


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