Sumo Group performing well as Tencent takeover looms

Video games design, development and publishing service provider Sumo Group reported a 91.7% surge in revenue in its first half on Wednesday, to £50.4m, including the performance of Pipeworks, which it acquired in October last year.

The AIM-traded firm said like-for-like revenue grew 48% on an organic basis for the six months ended 30 June, to £38.6m.

Adjusted EBITDA was up to £11.4m, from £6m in the first half of 2020, while the board reported that Pipeworks performed “well” in the first full six-month period of Sumo ownership, with its revenue coming in at $14.1m (£10.43m).

Sumo said its adjusted gross margin in the period was 40.2%, up from 38.7% a year ago, noting that Pipeworks, not included in the 2020 first-half figure, had a lower gross margin than Sumo Digital due to higher employment costs and the use of lower-margin contractors.

Looking ahead, the company said the strong underlying growth in the video games market was expected to continue in the long-term, as the company’s pipeline of business development opportunities at the end of August had a total contract value of more than £540m.

It said its acquisition pipeline remained “strong”, with the group still evaluating new acquisition opportunities in line with its strategic priorities and growth strategy.

The board viewed the firm’s prospects for the 2021 financial year and beyond with confidence.

“The extraordinary has become the norm at Sumo Group - the business has been going from strength to strength, expanding as demand increases in this large and fast-growing global market,” said chief executive officer Carl Cavers.

“Our great people continue to deliver great games, which, in turn, are generating strong financial results for the group.

“Then, shortly after the half-year end, we announced the recommended all cash acquisition of Sumo Group by Tencent, valuing the business at over £900m and delivering a very positive outcome for all our stakeholders.”

Cavers said that process was ongoing, and was expected to be completed towards the end of the fourth quarter.

He said that since the start of 2021, Sumo had increased its capacity through the acquisition of PixelAnt, and added a new publishing element to the business through the launch of Secret Mode in March.

“Timbre Games was launched by Pipeworks in Vancouver in July and, earlier this month, we added Auroch Digital to our growing portfolio of studios via acquisition.

“Auroch Digital supports our publishing ambition and brings further talent acquisition opportunities in the south west to provide further capacity in games development.

“We are also expanding with the opening of our second Sumo Digital studio in India next year.”

The company’s focus remained on delivering further strong growth organically and by acquisition, Carl Cavers explained, describing the pipeline of opportunities as strong.

“We have an encouraging level of visibility on development fees for both 2021 and 2022 and, with our markets continuing to perform strongly, are very confident about the future of the business, which we expect to be under the ownership of Tencent.”

At 0906 BST, shares in Sumo Group were up 0.41% at 489p.