It’s not Japanese, as its name would imply, but video games firm Sumo Group has also seen a huge pick-up in business.
Last year, the World Health Organisation described video game addiction as a mental health disorder. Earlier this year, the WHO came out publicly in favour of video games, as a way of helping people to stay connected with one another during lockdown.
The recent endorsement may seem surprising but it reflects a huge shift in the way that people play games. Once, a solitary habit largely practised by teenage boys, gaming has become a social experience.
Popular: Once, a solitary habit largely practised by teenage boys, gaming has become a social experience
Most enthusiasts play multiuser games that involve several people, their average age is 34 and about 45 per cent of them are women.
Gaming has also soared in popularity. There were already more than two billion gamers before lockdown, but in recent months it has become the most popular way to pass the time, even outranking Netflix and Amazon Prime. Interest has continued even as lockdown restrictions ease and Sumo is well-placed to benefit.
One of the biggest independent game developers, this Sheffield-based business counts the likes of Sony, Microsoft, Sega and Apple as customers. And it is known across the industry for high-quality, reliable and creative work.
The company can do everything that a game publisher needs, from dreaming up new games to designing them, developing them, making sure they work and providing support after a game is launched.
Contracts are long term so revenues are steady and robust. Sumo has also built up strong relationships with its customers, working with big names such as Sony and Sega for more than 15 years.
Chief executive Carl Cavers recently delivered strong half-year figures and analysts expect a 25 per cent increase in annual sales to £61.5million for 2020 with a surge to £93million for 2021.
Profits are likely to be static at £11.5million this year, as the company has been hiring new people to cope with increased demand. And it has incurred some new costs, as it moved staff to homeworking.
Next year, however, profits should shoot up to £17million with further growth pencilled in for 2022. Sumo has also just bought a US business based in Oregon. The company, Pipeworks, will give Sumo access to new American customers and Cavers worked with Pipeworks boss, Lindsay Gupton, for several years so he knows the business and its people well.
Looking ahead, Sumo’s outlook seems set fair. Not only does it have a rich pipeline of work, including the launch of Sackboy: A Big Adventure later this year, but it is starting to publish its own games.
Self-publishing is riskier. If a game flops, it can create losses. But the rewards are that much higher if games do well.
With years of experience, Sumo has a pretty good idea of what works and what does not, and the company is starting small, with games that cost £1million or less to develop, compared with tens of millions for big games.
Midas verdict: Midas recommended Sumo in September 2018, when the shares were £1.64. Since then, they have risen 59 per cent to £2.60. The increase reflects strong growth and rising confidence in Sumo’s prospects. Existing shareholders should hold on to the stock. New investors could even snap up a few shares.
Traded on: AIM Ticker: SUMO Contact: sumogroupplc.com or 0114 242 6766