THIS IS NOT A TIP OR RECOMMENDATION. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITE. IF YOU COPY MY TRADES, YOU WILL PROBABLY LOSE MONEY. NPT IS A SMALL HIGH RISK COMPANY AND NOT ONE TO PUT YOUR LIFE SAVINGS IN !!
You may have spotted that I bought more Netplay TV (Epic code NPT) back on Monday 21st March 2016 at 9.75p. The Company is best known for the ‘SuperCasino’ show it runs on ITV and Channel Five late at night but it also has other Online Gambling websites, including a Sports Betting bit.
I have held this Stock for a couple of years but never put much money into it as it is a low Market Cap and had some trouble over the introduction of the Gambling ‘Point of Consumption’ Tax (POC) and the new regulatory environment for Online Gambling Companies.
However, this is very much in the past now and has actually turned out to be a double-edged sword as I will explain in due course. The beauty for me now is that the POC has created a situation where NPT is hugely undervalued by the Market in my view and I think it is very likely that I can repeat the success I had with 32Red TTR last year. The circumstances are remarkably similar although I will concede that TTR is probably a superior business - but that is not to say that NPT will not perform very well as the Market wakes up to the growth that is now coming through - and I get a chunky Dividend on top !!
Regular Readers and Tweet sufferers will know that I have been very inactive this year - Markets got off to a horrible start and with the Brexit Vote not far away, I am very reluctant to take positions on the Long tack - so my topup on NPT illustrates my level of conviction. I have been stalking NPT for a topup for months and months but the Chart was always uninspiring and the recent Results were a bit mixed so progress was hard to nail down. However, on the morning of Monday 21st March 2016, NPT put out a ‘Final Results’ RNS and they also announced a Special Dividend that Shareholders will receive if they hold the Stock on the 18th May 2016 (it goes ex-dividend on the 19th May and the Record date is the 20th May - in essence you need to hold the Stock on 18th May to qualify), which amounts to 0.68p but there is also a Final Dividend of 0.34p - totalling 1.02p.
Having seen the Divvy announcement, I quickly worked out that it amounted to nearly 10.5% of the 9.75p I paid - so, in effect, I have only paid 8.73p - because I will get a ‘Cash back’ in June.
Normally I would bide my time and make a Buy Decision ‘Out of Hours’ so that the swings and gyrations of the Market do not overly influence my emotions and I can be calm and rational - however, I broke my rule here because it seemed obvious to me that people had not picked up on this and after I bought the Shares continued to rise by about 13% on top !!
I mentioned on Twitter that I am quite looking forward to writing this Blog. I haven’t written a ‘Buy rationale’ one for ages and I feel like getting really stuck into this one - so hopefully I can do a decent job of it. There is huge potential upside on NPT and I feel no great need to rush out a scrappy Blog, so I will take my time and try and be pretty comprehensive. I am thinking of buying more NPT and doing this will help clarify my thoughts on buying even more. Currently I have just under 2% of my Portfolio Exposure in NPT - I could easily up this to 3%.
I was in the boozer the other day with my mate discussing the merits of Behavioural Psychology with regard to Investing, building on my recent reading of Daniel Kahneman’s superb book, ‘Thinking, Fast and Slow’ (available in Wheelie's Bookshop and good Bookshops) and an upshot of our chat was that when I write these Buy Rationales, I will try and put more emphasis on the Risks and I will also try to put these higher up the order of Sections - although of course I need to do a bit of an Introduction first or the Risks won’t really make a lot of sense.
We both had the thought that when you read ‘tips’ and stuff in the usual sources, they very rarely emphasise the Risks involved and the potential Downsides - I think it is critical to understand these aspects of any Investment and the psychological affect of just putting out a glowing Argument to Buy a Stock can really impact Readers in a bad way.
The thinking here is that we all suffer from a Cognitive Bias (brought about by our ‘Fast Brains’) whereby our First Impression is very deep and difficult to overcome. By starting off on the Stock in a positive way, I am implanting on Readers a favourable First Impression and this could cloud judgement. By putting Risks more up front, hopefully this will help to soften this bias.
NPT describe themselves like this on their Website - seems about right:
“NetPlayTV is the UK's largest interactive TV gaming company. We use our extensive knowledge of creating profitable games with our proven ability to create great TV show formats. Applying this unique combination, we develop highly successful brands that people can play on TV, online and on their mobile.”
NPT has 3 main Brands:
In August 2015, NPT bought ‘Otherside Inc.’ which is an Online Marketing Agency - more detail is provided on this in the ‘Company History’ Section later in this Blog.
The corporate Website can be found here:
The Gaming Websites are here:
You gotta check out the Presenters - lots of Hunks for the Girls and Totty for us Blokes !!
The ‘Point of Consumption’ (POC) Tax was introduced in 2015 and is a levy on the Revenues that Gaming Companies take from their Punters. Along with this Tax came a new Licencing Regime which in effect made it illegal to operate in the UK Market without being Licenced and paying the POC Tax. This hit the NPT Share Price hard as it was very uncertain what the impact on Profits would be - the same happened with 32Red TTR.
In practice, NPT reduced its Marketing Spend with regards to attracting New Depositing Players and put a lot of effort into focussing that Spend better. With illegal Online Offerings exiting the Market, it turned out that NPT have achieved a very high Growth Rate and also reduced their Costs !! Note, a similar thing happened at TTR. So both these companies are benefiting from introduction of the POC Tax which is certainly not what anyone predicted.
On Monday 29th March 2016, 32Red TTR got hit hard, down 9%, following an article in Shares Magazine that covered a part of the recent Budget where Ozzy Osbourne is going to apply the POC Tax to ‘Free Spin’ promotions and “get a £10 Free Bet” kind of things. Strangely NPT did not get hit by this but actually rose - however, I would expect it to apply to NPT also. On balance, this will be a Sector-wide issue and I expect other Marketing Ploys to be used to try and attract new Punters if such temptations become unfeasible.
Page 7 of the Annual Report 2015 lists the Company’s view of ‘Principal Risks and Uncertainties’ - these are worth a look - there is a link further down this Blog. It is particularly good because it lists the ‘Risk Description and Potential Impact’ on the left hand side and then has ‘Current Mitigation’ on the right hand side - well worth a look.
Needless to say this is a long list of Risks but I wanted this section to be pretty comprehensive. My own approach is to weigh up the Risks and size my Positions accordingly - Readers will no doubt have your own methods of Risk Management (such as Stoplosses).
NPT is AIM listed with the EPIC Code NPT. NetPlay TV plc is incorporated in England (Registration Number 3954744) which is also its main country of operation.
NetPlay TV plc
80 Silverthorne Road
London SW8 3HE
Tel: +44 (0)20 7819 9100
Fax: +44 (0)20 7819 9199
55 Baker Street
London W1U 7EU
Nominated Advisers (NOMAD):
Shore Capital & Corporate Limited
Bond Street House,
14 Clifford Street,
London W1S 4JU
Can be found here:
Financial Calendar - dates for Exdiv and Results etc. can be found here:
NetPlayTV plc was listed on The London Stock Exchange, Alternative Investment Market (AIM) in April 2001. The Company was established in 2000 to develop and market a complete range of mass-market entertainment and information products through IVR (Interactive Voice Reponse), SMS (Subscriber Messaging System - texts), online and offline.
In December 2006, the Group underwent a significant change when the fixed line telephony business was sold and the TV gaming business was acquired. NetPlayTV has a strong marketing led focus backed by an extremely strong technical team.
Vernons was acquired in October 2013.
In August 2015, NPT bought ‘Otherside’ which is an Online Marketing Agency. This brought to the company specialist staff and an Online Media Platform which enables NPT to take more control of its Marketing activities - this is a big contributor to the reduced Marketing Spend and increased effectiveness enforced since the POC Tax was introduced. In addition, NPT expects to benefit from diversification of its Revenue Streams as Otherside grows its business.
Something to be aware of here is that NPT did not buy the Otherside Branding and Website - this is mentioned in the Final Results that came out on the 21st March 2016. I am pretty sure I read somewhere that Otherside was bought from a Director of NPT but I have not cleared this up and I can see nothing about this in the Accounts - it is something to be aware of as such transactions can often be rather ‘undesirable’. Check out my ‘Risks’ Section for more coverage about this Otherside deal.
Bjarke Larsen, the CEO, describes the Otherside acquisition with these words in the 2015 Annual Results:
“The acquisition in August 2015 of the trade and assets of Otherside, a specialist online digital marketing, product development and technology company, has provided a complementary and profitable revenue stream whilst adding to our capability in driving traffic to NetPlay TV's brands. These assets included a proprietary media platform, which is best described as a Demand Side Platform (“DSP”). This DSP allows our media buyers to manage multiple ad and data exchanges, of which we have over 100, through a single interface. The DSP allows the team to build campaigns for our partners and efficiently manage bids and pricing for the media we are buying.
The B2B offering generates revenue on a CPA* (Cost per Acquired Customer), revenue share or hybrid basis for a number of companies
across a wide range of sectors. The acquisition has proved a valuable addition to the Group and we are confident that this offering will go
from strength to strength as we start to take advantage of a number of additional opportunities, including increasing contributions to our B2C business over time.”
* CPA is calculated as aggregate marketing expenditure divided by the total number of new depositing players
I have simply included a few Major Milestones for the Company here - for more details Readers will probably need to go through the Archives of NPT RNS News Items which are easily accessible via the NPT website at
Some limited details on the Directors can be found here:
The following numbers are taken from the Annual Report 2015 and do not include any changes after this date - if Readers want to look through and work out the changes since this then feel free !!
From the Annual Report 2015 and as at 15 March 2016, the following had interests in 3% of the total voting rights of the Company:
I am really happy to see Slater Investments here - Mark Slater is arguably the sharpest Small Cap Fund Manager and is the son of the Legendary Jim Slater, who sadly passed away recently.
Directforce is the Teddy Sagi vehicle and clearly he has a chunky Shareholding so can exert considerable influence on the Company.
An up to date list of these Shareholders can be found here, in case you are reading this Blog long after I first published it !!
On 21st March 2016 NPT issued Final Results for the Year Ending 31st December 2015. The bits that stood out to me are:
The horrible ‘EBITDA’ (Earnings before Interest, Tax, Depreciation, Amortisation) is quoted throughout the Statement and many Investors will be put off by this. I see no need to get hung up on it, the bit I have focused on is in the “Cashflow” statement where they talk about £2.110m of “Net Underlying Cashflow” and I base my Valuations on this figure.
To give a taster, if you strip out £10.8m of Cash that is NPT’s from the current Market Capitalisation of a shade under £31m, you get a Price/Cash Earnings Ratio of 9.6 (31 - 10.8 / 2.11). As an aside, I must say I like doing a Ratio like this - it is much more ‘pure’ in terms of actual earnings than the hugely ‘adjusted’ figures we tend to get in Company Statements these days.
The Revenue is down because growth in this Sector is very much driven by Marketing Activity (and therefore Marketing Spend) - this passage helps explain this situation, but it is worth noting that for 2016 so far, Net Revenues are up 18%:
“Total marketing expenditure for the year was £9.4m (2014: £12.9m) with B2C Marketing expenses decreasing by £4.2m to £8.7m. This expenditure reflects the effect of the revised marketing programme which was launched in late-2014. These expenses include the cost of the revenue share agreements in respect of key broadcast agreements with ITV and Channel 5. We are pleased to see that the revised marketing strategy we adopted at the end of 2014 is working as we successfully reduced marketing expenditure by 32% with only an 8% fall in net revenue. Our CPA, on our casino-only brands, decreased by 20% from £208 in 2014 to £166 in 2015 as a result of increased efficiencies.” (CPA is Cost Per Acquired Punter).
This comment here from the CEO is interesting:
“NetPlay TV continues to have a very strong balance sheet and remains highly cash generative, giving the Board continued confidence that the Group is well positioned to pursue not just bolt on opportunities but also more transformational deals, taking advantage of the organic growth and M&A opportunities that lie ahead.”
I say this because it is clear that NPT is considering more than just mere small ‘bolt-on’ acquisitions - this of course has a double-edge - poorly executed acquisitions can go horribly wrong, but on the flipside, a truly ‘transformative’ deal could see a big jump in the Share Price.
On the morning of Monday 21st March 2016, NPT put out ‘Final Results’ and they also announced a Special Dividend that Shareholders will receive if they hold the Stock on the 18th May 2016 (it goes ex-dividend on the 19th May and the Record date is the 20th May - in essence you need to hold the Stock on 18th May to qualify), which amounts to 0.68p but there is also a Final Dividend of 0.34p - totalling 1.02p. This means new Shareholders can buy the Shares before the 19th May 2016 and still pick up the 1.02p of Dividends, which equates to nearly 10% on a Share Price of 10.38p.
I think the Dividends are due to be paid on the 9th June 2016. The Special Divvy will use £2m of the Cash Pile and the Normal Divvy being paid out as well will use another £1m.
Recent Director Dealing
Since the ‘Final Results’ and ‘Dividend Declaration’ on the 21st March 2016, there have been several Director Deals:
It is interesting that a few Directors were buying whilst another Director was selling a large amount. My view on this is that Directors can often have reasons other than Valuation etc. that motivate their selling - for example, Divorce, new House purchase, Diversification reasons, other business interests etc. Charles Butler still has 2.1m Shares so he has a pretty sizeable holding.
With ‘Buys’ there are far fewer reasons - in fact, I would guess there are mainly just the two:
Obviously in this case it is unlikely to be the latter motivation to Buy !!
Sadly I do not have any forecast figures to go on - due to the size of the Company I don’t think it is getting much (if any) broker coverage. Therefore, I will need to work on the numbers we already have - which is arguably a better method anyway.
You may remember me mentioning earlier that if you strip out £10.8m of Cash that is NPT’s from the current Market Capitalisation of a shade under £31m (at the Mid Price today of 10.38p), you get a Price/Cash Earnings Ratio of 9.6 (31 - 10.8 / 2.11). Note - I am understating the numbers here, in reality some of the Cash Pile (in total £13m) is included in the Market Capitalisation but it belongs to Customer, not NPT - so I am being very conservative and arguably I could have stripped out the full value.
So far the Company has got off to a strong start to the Year and I think it would be nicely conservative to assume that NPT can achieve 10% growth in its ‘Underlying Cashflow’ that was mentioned earlier - this would give a figure of £2.32m. On today’s Mid Price of 10.38p, that would give a Price/Cash Earnings Ratio of 8.7 (this is after stripping out the Cash). This looks cheap to me.
But of course this does not allow for any growth from future Acquisitions - so with growth of just 10% I think I am probably very understating what the Company could realistically achieve.
Another way to consider this is via the Dividend Yield. This year just gone, the Company is paying a Normal Dividend in total of 0.56p according to ShareScope. On a Price of 10.38p this is a Dividend Yield of 5.4% - pretty chunky. If we project forwards, it seems reasonable to think the Divvy might get raised to perhaps 0.6p - if so, this would give a Forward Dividend Yield of 5.8%. Note, these numbers do not include the Special Divvy.
As I mentioned, the Numbers in my ‘Valuation’ section are pretty conservative but it seems realistic to me that if NPT can keep steadily delivering over the next year or so, then it would be fair to Value the Company at 15 times its Historic Cashflow - this would give a Target Price up around 14p (trust my maths on this !!).
If we were to value it on the Cashflow Projection I made of 2.32m and put on a Ratio of 15, we would get a Target of 15.5p. This is nearly 50% upside on the current Share Price of 10.38p. At 15.5p, the Historic Dividend Yield would be 3.6%.
Of course these don’t allow for any growth from future Acquisitions and I think my numbers are pretty conservative. Allowing a bit for decent Bolt-on Buys might enable a Target around 17p.
From a Charting viewpoint, here’s the Chart going back 15 years - as you can see, NPT is very much near the bottom of its Long Term Chart.
Zooming in a lot, here is the Chart for about the last 7 years - I have marked the Key Resistance Levels as I see them - obviously 24p will be very hard to get over and I suspect even if things go really well, it would take a couple of Years to get even close to this.
Those Charts in the ‘Target’ Section give a taster, here are some more Chart bits. The Chart below goes back to the end of 2013 and clearly the NPT Share Price got itself into a Downtrend Channel which is marked by my Red Parallel Lines.
Around April 2015, the Price got out of the Downtrend Channel and maybe now we are in more of a Sideways Range, as I have marked with the Parallel Black Lines - although of course my Top Line is a bit rubbish here as it only has 1 ‘touch point’ - call it ‘Poetic WheelieLicence‘.
Obviously it needs to breakout over about 12p for us to be confident it is going much higher.
On the Screenshot below, note how the 50 Day Moving Average (which I have marked with a Blue Arrow) is curving up and is very close to doing a ‘Golden Cross’ against the 200 Day Moving Average (which I have marked with a Green Arrow). Regular Readers of my Blogs and stuff will be aware of the significance of this - it could be very good news.
I won’t go into further detail, but I get the feeling the Share Price could pull back for a bit after the recent jump up on the Results, Special Divvy and Director Buying - however, I am sure Buyers will emerge again soon enough as they will want to get in before the Ex-Div Date on 19th May 2016.
As with almost all Stocks I buy, I am looking at NPT as a Long Term Play and expect to be holding it for a few Years - I reckon it can keep delivering a nice Dividend and growth can come organically and especially by Acquisitions - these factors should drive the Share Price up over time. NPT has started 2016 very strongly and it seems likely they can have a very successful year, despite the introduction of the POC Tax.
I very much see this as a potential repeat of what happened at 32Red TTR which was a Stockmarket Darling last year once people had woken up to the Story. Obviously there are Risks but it looks very good value around the current Mid Price of 10.38p and with recent Director Buys and Mark Slater on board, the gamble looks pretty favourable.
With 1.02p of the Share Price being given back via the Special Dividend in June, it seems a pretty good time to be buying into what looks like a pretty undervalued situation. I am looking for 18p here but I am a patient chap and will be happy to hold for a long time and to milk it as much as I can.
Hope you liked the Blog, it has been really nice to write a ‘Buy Rationale‘ after such a long layoff, regards WD.
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