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Sumo Group Plc - Playing for Keeps

Sumo Group (LON:SUMO) provides creative and development services to the video games and entertainment industries, through two main operating businesses: 1) Sumo Digital, representing 90% of group revenues, is a key co-development partner and turnkey video games developer with a history of working with blue-chip clients such as Sony, Microsoft, Sega and EA (among others); 2) Atomhawk, representing 10% of group revenues, is a visual design company servicing the videos games and entertainment industries.
Sumo Group Plc - Playing for Keeps

Listed companies in the video games space tend to command high valuation multiples, due to the growth dynamics of the industry. There is scope for Sumo to re-rate to a higher multiple, in line with peers (see p2). We argue that, given its strong growth prospects, limited risk business model, and strong cash flows, Sumo Group offers an attractive valuation at current levels.

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Sumo Group PLC Timeline

CN Research
May 09 2018

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Location Sciences Group PLC (LON:LSAI) is a high growth technology company and global leader in location verification. Location Sciences was born in September 2017 from the ashes of Proxama PLC. The transformation was formalised with the name change to Location Sciences Group PLC in 2018. During the last 12 months, Location Sciences has launched its first-of-a-kind location advertising authentication platform – Verify. The company has achieved rapid growth in revenue in the last nine months, while substantially reducing its cost base. In this report, we examine the progress so far and the roadmap going forward.

Carriers of mobile-phone-based advertising can command a large price premium for advertising that targets consumers in a specific physical location. Brands who wish to use location-based mobile advertising (a market estimated to be worth US$19 billion in 2018 source: Juniper, Sept 2017) face a huge problem with inaccurate and fraudulent location data from ad publishers. The Verify platform allows brands to authenticate their location-based advertising.

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CUI Global (NASDAQ:CUI) has reported strong results for the full year (FY) 2018, with revenues of US$96.8mln versus our forecast of US$92.8mln. The FY order backlog stood at US$37.5mln versus US$32.8mln at the end of 2017.

The company reported an underlying loss (statutory LBITDA) of USS$14.0mln versus our forecast of a loss of US$8.1mln; however, this figure is after booking non-cash impairment charges of US$7.4mln, relating to delays in existing customer contracts in the Energy division, and other issues. On an adjusted EBITDA basis, the outcome of a loss of US$8.0mln was ahead of our forecast.

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Gfinity PLC (LON:GFIN) reported results for the first-half period to December 2018, on March 4, demonstrating very strong progress. Revenues grew 143% year-on-year, with 104% growth for the Managed Services business and 387% for the Owned Content business. Managed Services increased its revenues by 189% on a like-for-like basis (based on existing partners) and achieved 4.3x increase in viewership. Going forward we expect continued growth in both divisions, with Managed Services becoming the major driver.

Gross profit was +ve £0.5mln (H1 2018: £3.2mln loss), with the improvement driven by improved profitability in Managed Services and reduced investment in the Elite Series contributing to a £2.8mln improvement in gross profit for the Owned Content business. The company reported a net cash position of £6.4mln, representing a good level of resource to support further growth. Overall, we have increased confidence in our FY June 2019 forecast of 80% revenue growth and positive gross margin.

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