Shares in games developer Sumo Group (SUMO:AIM) raced 9% higher to an all-time high of 214p on Wednesday after reporting first-half revenue up 27% to £26.3 million and adjusted gross profit up 18% to £11.5 million.

The company indicated full-year results to 31 December 2020 would be ‘at least in line with consensus market expectations’ which is usually code for a slight beat. Consensus revenue forecasts sit at £58.3 million while earnings before interest, taxes, depreciation and amortisation (EBITDA) are expected to be £14.1 million.

Sumo has strong revenue visibility with 88.9% of forecast development fee revenue for the current financial year contracted or near-contracted, up from 71% in June, while it has 37% visibility out to the end of 2022, supported by a pipeline worth £358 million.

BUSY YEAR

Despite the challenges of Covid-19 the company has been ‘incredibly busy’ with seven new games launched or announced which includes four games where it owns the intellectual property-Spyder, Little Orpheus, WST Snooker and Hood.

Headcount has been increased by 66 to 832, all achieved through remote interviews and Sumo also reported ‘several significant contracts’ had recently been signed despite travel restrictions and cancelled trade events.

ACQUISITION

Sumo announced the conditional acquisition of Lake Street Labs Buyer Corp, owner of Pipeworks Inc, an innovative, well established West Coast US video games developer for a total value including debts of up to $99.5 million, paid for with a mixture of shares and cash.

According to management, the purchase price is equivalent to around 10 times expected EBITDA.

The business and chief executive Lindsey Gupton is well known to management and employs 134 people including 123 developers. Key customers include Entertainment Arts, Wizards of the Coast and Google.

Pipeworks has built expertise in artificial intelligence and game science in relation to adjacent sectors such as the US public sector, distance learning and remote healthcare.

The initial consideration of $59.5 million will be satisfied by $35 million from the group’s cash resources and $24.5 million through issuing shares to the vendors.

At the end of June the company had net cash of £30.3 million and an undrawn, extended revolving credit facility of £30 million.

The company will remain debt free following the completion of the deal.

In line with the strategy to reinvest a ‘significant portion’ of the company’s earnings to facilitate growth and diversify the revenue stream, the directors have not proposed paying a dividend, but have not ruled out paying one in future.

READ MORE ABOUT SUMO HERE

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.

Issue Date: 30 Sep 2020