AIM-listed Nektan Plc is engaged in the gaming sector. The group is engaged in offering B2B gaming platform and content development. Its areas of operation categorised into segments like Real money gaming, Content licensing and Software development. Also, it works together with leading game studios to produce their content on their RGS and make easier content delivery, their licensing structure and multiple business channels. The group also provides land-based Casino in the United States through its US-based subsidiary. Its shares are listed on the Alternative Investment Market of the London Stock Exchange and got admitted as on November-03-2014 for trading.
Toscafund Asset Management LLP, Octopus Investments Limited, AXA Investment Managers UK Ltd., Crux Asset Management Limited and Standard Chartered Grindlays are the major institutional investors in the group.
Recently (as on June 24, 2019), the group reported its pre-close trading update for the financial year ending June 30, 2019. In the exchange filing, the group mentioned that the board of the Nektan expects to deliver double-digit revenue growth on a YoY basis and EBITDA loss for the financial year ended 2019, would be substantially lower against the EBIDTA loss recorded in the year-ago period. The board also stated that, on account of softening trends during the third quarter and fourth quarter of FY19, they would not be able to achieve break-even EBITDA for FY19. The group is also experiencing heightened UK regulations pressure around player marketing and verification.
Chief Executive Officer at Nektan Plc, Mr Lucy Buckley stated that, in their B2C business, the management took several actions in conjunction with the Nektan’s partners, to deliver favourable results.
Company’s B2B business is on track to deliver exciting progress and their opportunities in the pipeline are continuing to develop and have seen engagement with an enhancing number of larger market participants worldwide. They expect a number of these to go live in the remaining months of 2019, which could have a transformational impact on Nektan business, he added.
In the exchange filing reported by the company as on April 17, 2019, the group completed a 57.5 per cent stake sale of its US-based subsidiary Respin to Alternative Investment Partners Ltd. The deal was executed for consideration of £0.3 mn in cash and a provision of £0.8 mn in working capital to Respin.
Q3 Financial Year 2019 – Trading Update
In the exchange filing made by the company as on April 05, 2019, the group’s revenue during the quarter surged by 5.9 per cent and stood at £5.4 mn from £5.1 mn recorded in the year-ago period. B2C net gaming revenue remained flat against Q3FY18 at £5.1 mn. However, its B2B revenue nudged by 322% to £0.35 mn from £83k recorded in the year-ago period. On a quarter-on-quarter basis, B2B revenue recorded a growth of 75 per cent from £0.2 mn recorded in the second quarter of the financial year 2019. B2C First Time Depositors declined by 12.2 per cent on a YoY basis and stood at 31,914. B2C Cash Wagering narrowed marginally to £141mn from £142.4mn reported in the year-ago period.
The group also mentioned that B2B and B2C global sales pipeline is stronger and growth trajectory was on track and recorded break-even EBITDA in the first half of FY19.
During the period under review, the total number of available games surged by 11 per cent on a quarter-on-quarter basis and stood at 834 from 750 recorded in the Q2FY19, and the total number of game providers stood at 38 from 27 recorded on the second quarter of FY19. In the third quarter of FY19, Nektan signed a content aggregations contract with Leander and Rock Salt.
Also, its US-based subsidiary floated its Class II and Class III “On Premise” mobile product with leading Tier-1 casino group in California.
In the first half of FY19, group’s reported revenue surged from £8,808k to £13,019k and witnessed a 48 per cent growth against the year-ago period. However, the group reported revenue growth of 17.6 per cent against H2FY18. In the first half of 2019, the group’s adjusted EBITDA stood at £336k against a loss of £916k recorded in the same period of the previous financial year. Operating loss from continuing operations during the H1FY19 stood at £201k against the loss of £1,919k reported in the corresponding period of the previous financial year. Pre-tax loss during the year under consideration stood at £843k against the pre-tax loss of £2,926k recorded in H1 FY18. Basic and diluted loss from the continuing operation stood at 2.7 pence per share against the per-share loss of 9.2 pence recorded in the first half of the FY2018. However, basic and diluted loss per share from continued and discontinued operations in the H1FY19 was at 14.9 pence per share against the per share loss of 12.6 pence.
On a trailing-twelve-months (TTM) basis, the group recorded a gross margin of 62.5 per cent, whereas in the same period industry average stood at 71.9 per cent. At (TTM) operating level, the group’s margin was in a negative zone as compared with the industry margin of 13.8 per cent.
From the return on equity standpoint, the group has negative ROE, whereas industry median ROE in the same period stood at 16.4 per cent.
However, at the efficiency standpoint, Nektan performance was relatively stronger than the peer group. Asset turnover ratio of the group stood at 2.01x as compared with the industry median of 0.68x. This exhibits operational efficiency of the group against its peer group. Receivable turnover of the group stood at 9.1x, whereas industry median stood at 9x.
Nektan Plc – Stock Price Chart
Daily price chart (as on June 25, 2019), before the market close. (Source: Thomson Reuters).
At the time of writing (before the market close, at 02:19 PM GMT), shares of the NKTN were quoting at GBX 10.25 and trading flat against the previous day close. The outstanding market capitalisation of the company stood at around £11.33 mn, which ranks it among the small-cap companies listed on the London Stock Exchange and a constituent of FTSE AIM All-Share, and FTSE AIM All-Share – Travel & Leisure.
52w H/L price range
In the past year, shares of the Nektan Plc have registered a 52w high of GBX 27 (as on July-04-2018) and a 52w low of GBX 10.0 (April-08-2019), and at the current trading level, shares were quoting around 62.04 per cent lower against its 52w high price level and approximately 2.5 per cent above the 52w low price level. This indicates the stock has witnessed steep plunge and oscillating in down-trend, that could go for a longer period of time.
The 5-day average daily trading volume in the stock stood at 224,127.60, which was around 52.84 per cent above the 30-day average daily volume of 146,637.47 traded on the London Stock Exchange.
Simple Moving Average (SMA)
From the simple moving average standpoint, shares of the Nektan Plc were trading considerably below its 200-day, 60-day and 30-day simple moving average prices, a technical measure that indicates a long-term downtrend in the stock. Very often, it was recorded that if a stock was hovering below its 200-day simple moving price, that indicates that, the stock entered into a bearish-cycle and near-term recovery could be tough.
Price Performance (%)
On a YoY basis, the stock of Nektan Plc has delivered a price return of negative 55.43 per cent, on a year-to-date basis, it was down by 27 per cent, and in the past three months, the stock has fallen off by approximately 26 per cent. Also, the stock was down by approximately 7 per cent in the past five trading sessions.
Relative Strength Index (RSI)
From the RSI standpoint, the 30-day, 14-day, and 9-day relative strength of the stock stood at 34.08, 25.8 and 19.60, and the stock has entered an oversold zone.
RSI is a leading technical indicator that measures recent price change magnitude to estimate the overbought or oversold direction in the stock price or other asset classes. If an RSI of an asset class stood at 70 or above, it indicates the stock is hovering in an overbought zone and could pull-back or correct in near-term and in case RSI quoting at 30 or below, it reflects an oversold condition in the asset.
At the current trading level as quoted in the price chart, 20-day simple moving average of the stock stood at GBX 11.50 and upper Bollinger Band® of the stock destined at GBX 13.50 and lower Bollinger Band® was at GBX 9.50 and current trading price of the stock stood at GBX 10.25, which indicates that the stock was moving towards the lower Bollinger Band® and carrying potential to fall further from the current trading level.
The above discussed, technical measure indicates that the stock has entered into a long-term bearish zone, and any near-term recovery in the stock seems to be challenging.