Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
In the current market environment, it is rare to find an ‘ahead of expectations’, growing company on a low prospective near-term rating. However, that is the case with Veltyco Group (VLTY)
Operations: The business came to AIM last year via a reverse acquisition of shell Velox3,“primarily focused on generating marketing leads and entering into marketing contracts for the activities of its partners… such as Betsafe (online casino and sports betting), Lottopalace (lottery) and Option888 (binary options)”. It has subsequently announced a further new marketing agreement – this with option trading platform ZoomtraderGlobal, “which the directors believe should bring additional traffic and players, resulting in improving results”.
Management Incentive: Chairman David Mathewson has experience including from having been a director and CFO of leading gambling industry software and services supplier Playtech. The AIM admission document noted he is paid an annual fee of €60,000 and has 249,769 shares (0.37%).
Chief Operating Officer Karsten ‘Uwe’ Lenhoff, is the founder of the Veltyco business and an industry veteran who started one of the first online casino with real money gaming. The AIM admission document noted he is paid an annual salary of €180,000 and has 26,252,265 shares (38.82%).
CFO Marcel Noordeloos has management experience from PricewaterhouseCoopers and Nike and further financial and industry experience from Playlogic. The AIM admission document noted he is paid an annual salary of €126,000 and he holds 859,954 shares (1.27%).
Recent Financials & Trading: September-announced results for the first half of 2016 showed an adjusted profit of €432,609, up from a corresponding 2015 period, €217,279, on revenue 78% higher at €2.10 million and a swing to a €0.35 million net cash position. Current asset receivables were slightly higher than at the corresponding 2015 stage at €2.56 million, with liabilities totalling €1.33 million.
The company noted it “benefitted from the start of the marketing efforts of binary options as well as the marketing in the lottery industry, with LottoPalace” and updated last month that “trading in Q4 has been strong, particularly in the binary options marketing business. Given current levels of business, the board expects the results for the year ending 31 December 2016 to be ahead of market expectations”.
Risks: The company has a reliance on partnership agreements and ‘VIP players’ and its AIM admission document admits that “the online gaming, lottery and binary option industries are becoming increasingly competitive”. There are also clear regulatory and fraudulent activity risks. On the latter, it emphasises “continuing efforts to protect… from such activities, including anti-money laundering procedures”.
Valuation: Broker to the company, Northland has forecasts for an adjusted pre-tax profit of €1.35 million for 2016, rising to more than €3 million (earnings per share of more than €4 cents, 3.5p) in the now current year. This suggests a current price/earnings multiple of less than 10x for a fast-growing, yet still expected to be strongly cash-generative, company.
We initially target 15x current year earnings as the growth story here garners wider attention - and, thus, at a current 34p offer price and up to 40p, initially targeting 52.5p, the shares are a buy.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and ahead of a new shorting idea from Lucian Miers next week click HERE
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