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Netplay TV Plc: DEEP DIVE

NetPlay TV is operating a cash machine

NetPlay trades at a sharp discount to peers and yields more than 6%, covered broadly twice by earnings, according to house broker Shore Capital.
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Interactive TV gaming company NetPlay TV PLC (LON:NPT) is quickly developing a second string to its bow.

Results for the first half of 2016 showed the company’s business-to-business (B2B) unit making a first time contribution of £2.1mln to revenue and £0.4mln to adjusted underlying earnings (EBITDA).

To put that into context, revenue for the whole group was up £2mln year-on-year at £14.7mln while adjusted EBITDA was £0.4mln higher at £1.7mln.

The B2B operating segment, which is a specialist online digital marketing, product development and technology business, was said to have performed ahead of expectations.

The division provides a complementary and profitable revenue stream while also driving traffic to NetPlay TV's brands.

The division was acquired in August of last year and the board reckons there are plenty of significant opportunities for growth in the coming year and beyond.

While the B2B unit is growing nicely, the business-to-consumer gaming side was broadly stable, with average revenue per depositing player decreasing 2% year-on-year to £267 from £273, as a result of a slightly weaker second quarter performance by the casino-only brands.

The group said it has already kicked off a programme to ginger-up its key performance indicators (KPIs), and the benefits of this initiative should be felt in the second half.

The programme includes a staggered roll-out of its business intelligence data-room, which is an in-house “one stop shop” for all player data and analysis. According to the group’s broker, Shore Capital, this should help to deliver improved KPIs, especially around customer acquisition costs and player lifetime values.

Marketing expenditure increased by £0.23mln to £4.73mln, reflecting the growth in new depositing players, with customer acquisition costs (CPA) ahead by a modest 2% to £173 on its casino-only brands, despite increased competitive activity in the UK, noted Shore Capital.

Marketing expenditure as a percentage of revenue increased from 35.3% to 37.7% but Shore would expect this to trend back towards 35% in the second half of the year.

Meanwhile, the company has the comfort blanket of a three-year partnership agreement with ITV, which was renewed earlier this year following the contract renewal last year with Channel 5.

“In the second half the group is investing in its TV content, including the shows aesthetics, HD [high definition] cameras and additional roulette game variants,” Shore noted.

The broker took note of the softer second quarter trading and lowered its full-year EBITDA estimate from £3.32mln to £3.21mln, which would still represent a sharp rise on 2015’s £2.69mln.

The broker said this was a conservative stance and noted the company had declared trading had picked up again since the second quarter.

The business is highly cash generative, and earlier this year NetPlay cheered shareholders with a special dividend of 0.68p in addition to a final dividend for 2015 of 0.34p. This year, at the interim stage, the dividend was held at 0.22p.

“These results show that the momentum delivered in the last year has continued into 2016 and we are very pleased to be reporting growth in overall group revenue and profit,” said Bjarke Larsen, the chief executive of NetPlay.

"The group's operational performance in the period has also been significant with not only the renewal of the ITV relationship, but also product enhancements, new site roll-outs and, post period, the launch of the AppleTV application.

"We set out our growth strategy at the beginning of the year and are focused on continuing to deliver against this. There has been significant M&A [mergers & acquisitions] activity in the industry, and the group, with its solid balance sheet, is well placed to pursue those opportunities that the board believes will be earnings enhancing," Larsen added.

Shares took a biffing on the basis of the soft second quarter trading but Shore remains a fan of the stock.

“NetPlay holds a unique position in the gaming industry with its TV content enabling the group to deliver attractive acquisition costs and player yields. Furthermore, cash generation is robust and the group retains approaching a third of its market capitalisation in cash,” said Shore analyst Greg Johnson.

“At just 5.7x 2016F EBITDA and 0.6x revenue NetPlay remains a valuation anomaly in our view and we see fair value closer to one times revenue - or 14p per share,” Johnson opined.

The shares were off 0.35p at 8.9p in afternoon trading.

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Netplay TV Plc Timeline

February 02 2017
September 13 2016
January 14 2016

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