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Nektan has delivered improved operational KPIs in the last 12-18 months as highlighted in today’s trading update. During FY2018 it raised £3.75m through loans and equity to capitalise on higher-margin sales in its B2B division, which now includes Asia. On our forecasts, Nektan requires £2.5m of funding to reach EBITDA profitability (ex-N. America) during FY2019. With the focus on addressing the US cash-drain in the coming months, we have introduced forecasts for the group comprising the Managed Gaming/B2B divisions. Key forecasts Year to Sales Adj. EBITDA Adj. PBT Adj. EPS P/E EV/EBITDA EV/sales ROIC
Nektan
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Nektan is an innovative B2B mobile gaming platform provider, gaining positive momentum in Europe and the US. However, the business is still early stage, with £13.3m FY17 revenues accompanied by continued EBITDA losses. During 2017, Nektan secured a £2.5m loan from management and raised £1.76m via a placing and subscription of new shares. Depending on performance, we believe further fund-raising is possible. The dilution from the 2017 fund-raising has been mitigated by positive sentiment over subsequent management share purchases, as well as a new investor. In our view, profitable revenue growth and a move to positive EBITDA are necessary for a re-rating.
Edison Investment Research is terminating coverage on Nektan (NKTN). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.
Nektan’s Q3 trading update shows revenues increasing rapidly, albeit from a much lower base than we hoped last year. We are reintroducing FY16 forecasts (EBITDA loss of £5.6m versus our October 2015 target of £0.2m profit) and will add FY17 in July. With Q316 revenue 115% higher than Q216 and following a cost efficiency programme, we believe that a positive EBITDA run rate is within sight. Nektan’s unconsolidated US JV Respin is also picking up steam and now has 54 signed contracts with casino operators. Nektan successfully completed a £2.93m fund-raising at the end of March to support its continuing growth.
Nektan's first full-year results since its IPO revealed solid revenue and operational progress, together with a positive outlook statement. The company reported a strong August for gaming revenues in European markets and increasing traction in the US casino market, where Respin is now active in 12 casinos, up threefold since the end of June. This sets the scene for near-term revenue delivery, paving the way for EBITDA profitability in FY16 on our estimates, achievement of which would narrow the current value discount.
Nektan’s trading update implies a slower than hoped for ramp-up in the business and management is now focusing on higher margin real money gaming and away from freemium. We have cut our previous aggressive forecasts and it is still early days, with important new partners such as The Sun only just coming on stream, encouraging KPIs and rising interest from US casinos in Respin’s products. The next six months is an important proving period but we continue to expect strong growth and, if our estimates are achieved, the FY17e EV/EBITDA is only 5.8x.
Nektan has released a full year trading update which delivers a number of key messages: 1) increased focus on higher growth and higher margin sectors i.e. Real Money Gaming and the US opportunity; 2) core KPIs indicate strong progress in RMG, validating the business model; and 3) the Respin joint venture is gathering momentum with four casinos in two states now live. While a FY 2015 EBITDA loss of £5.5m was in line with our expectations, funding delays have impacted the timing of investment and therefore the rate of revenue growth. We have revisited our forecasts to adjust for this with the result that our FY 2016 revenue forecast is reduced from £36.0m to £16.4m. Cost-saving initiatives have offset the profit impact of this reduction and we are now forecasting EBITDA of £0.5m in FY 2016 versus £2.8m previously. Despite this shift of revenue and profitability to the right we continue to view Nektan as a potential leader in the mobile and desktop gaming market. We reinstate our Buy recommendation and have a new Target Price of 278p (from 374p).
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