Nektan Interim Results Demonstrate Encouraging Business Momentum
Edison | Mar 26, 2015 06:12AM ET
All to play for
In the past six weeks Nektan PLC (LONDON:NKTN) has reported three major new B2B mobile gaming partners, including News UK (The Sun), demonstrating very encouraging business momentum and underpinning our expectation of substantial revenue growth in FY16. Maiden interims were in line with our expectations and our EBITDA estimates are unchanged. Nektan is early stage and our recent initiation outlined the potential for its market value to double over the next two years if it can sign up partners as planned.
New major white label deals
Nektan’s contract with News UK is a major coup, adding both scale and credibility. Sun Play will offer The Sun’s seven million readers a new real money gaming (RMG) casino and free-to-play skill games, and should contribute materially to Nektan’s results from H116. Nektan has also announced a white label contract with Channel 4 for a freemium bingo game branded Come Dine With Me, illustrating the opportunity to expand with media owners keen to leverage the value of their brands. It has also secured its first deal with a gaming operator, Kerching, while the ReSpin JV has installed its bolt-on slots product in one US casino and has eight others either contracted or with letters of intent.
Interim results cover start-up period
Interim revenues were very modest, as expected, at £0.25m, but with double-digit growth in cash stakes and real money players and encouraging progress in the US. The normalised operating loss of £2.7m was slightly less than we had forecast. Our EBITDA estimates are unchanged but we have slightly tweaked PBT (by c £0.2m) to allow for higher depreciation/amortisation. Net cash at 31 December was £1.5m; Nektan has recently secured a £1.2m loan and is in “advanced discussions” to raise further funding through the issue of convertible and ordinary shares.
Valuation: Early-stage investment opportunity
Nektan is very well positioned in the high-growth B2B mobile gaming market with its proprietary platform and games, and The Sun deal is an important milestone. We see the next six months as being an important proving period, since Nektan’s path to profitability depends both on the rate of adding new partners and the effectiveness of their marketing. If it can establish the profit trajectory that we are projecting, then the EV/EBITDA falls to only 3.3x in FY17 (versus an industry average of over 9x), pointing to substantial share price upside potential.
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