Investors reacted positively to better than expected trading updates from video gaming companies Sumo Group (SUMO:AIM) and Team17 (TM17:AIM) on Thursday, pushing their shares up 7% and 1% respectively.
The video games industry has seen strong growth through the pandemic as more people take up playing games during lockdown.
SUMO STREAMING AHEAD
Provider of creative development services to video games and entertainment industries, Sumo said full year adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) is expected to be at least £16 million for the period ended 31 December 2020.
According to the company, consensus analyst forecast calls for EBITDA of £14.8 million implying upgrades to come. Peel Hunt increased its estimates by 9% this morning to £16 million and upped its revenue forecast by 4% to £68.2 million.
Strong performances from Sumo Digital and higher than expected royalty income were the key drivers. The company also noted that recent acquisitions Pipeworks and Lab42 were integrating well and performing ahead of expectations.
Peel Hunt noted that the game Sackboy A Big Adventure is the second highest rated game on the PS5 console. The company said it was pursuing ‘a number of acquisition opportunities and new studio locations.’ Net cash at the period end was £6.8 million.
Shore Capital commented, ‘The group is likely to benefit from the wider industry trend towards outsourcing work and we continue to like the potential that could emerge from growing IP SUMO portfolio.’
The leader in premium independent video games Team17 said full year performance to 31 December was ahead of the board’s expectations with revenue and EBITDA growth of 34% and 36% to £83 million and £30 million respectively.
Shore Capital noted this is slightly ahead of consensus revenue expectations of £80 million but in line with EBITDA forecasts.
Team17 announced the acquisition of the game Golf With Your Friends (GWYF), an existing third-party label for £12 million developed by Blacklight Interactive.
Since partnering with Blacklight in 2019 Team17 has helped to more than double the number of owners of GWYF to 5.5 million through increased production values and positioning the game as a higher value proposition.
Shore Capital estimates Team17 ended the period with net cash of £58 million, leaving them with firepower for further acquisitions.
It added, ‘The sector has performed very well over FY20 and the premium ratings have been proven to be justified by upgrades and accelerated growth plans.’
However, it highlighted the ‘stretched valuation’ required a ‘significant upgrade’ to earnings before turning more positive.