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Nektan: Some good news, survival for now and a change of stance from a Not-Always-So-Cynical Bear

By Cynical Bear | Wednesday 5 July 2017

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.

Nektan (NKTN) has been surviving on fumes recently but its short-term survival is ensured by an announcement this morning with a loan from its major shareholders and although the future still looks tricky, such support is to be applauded as it keeps hopes alive for the wider shareholder base.

Nektan has apparently been working on a longer-term funding solution for a few months now and I’m guessing it’s been more challenging that it expected as this morning it announced a bit of a sticking plaster solution with Gary Shaw, interim CEO, and Sandeep Reddy the two largest shareholders, lending the business £2.5 million between them at 10% interest and some warrants thrown in too.

In addition, it announced that the core B2B business continues to grow with revenues in Q4 of £4.2 million. At this level, the business will still be burning cash bearing in mind plc costs and the other parts of the business that require investment; however, it is still progress.

The other good news that was announced this morning was the negotiated agreement around the buy-out of the marketing services business which we had been told previously could have been as much as £4 million. We now know that the parties have agreed on an amount of £500,000 with half paid now and the rest paid in the future. That seems like a sensible compromise given all the circumstances.

In terms of the funding, I’m guessing what has happened is that the business wasn’t perceived to be sufficiently close to break-even for third parties to invest significantly by way of debt or equity at least not at a level which wouldn’t have led to massive dilution for all, so Gary and Sandeep have put their hands in their own pockets to support the business to give it a few more months to try to show sufficient traction to be able to sort out the longer-term balance sheet issues here.

I think that should be applauded. That’s not an insignificant amount of money and although I know as major shareholders they would lose out if the company went to the wall, it’s still a decent chunk of money.

Accordingly, I’m going to lay off these guys for a while. Do I think it’s suddenly a buy at the current share price? No I don’t as I think there are significant challenges remaining and the debt may still overwhelm the equity; however I wish them well. Unlike most of the businesses I critique, this is an actual business, it’s not just a cash shell or a stock promoted on hype alone and supported by countless PR interviews and opaque or misleading RNS’s.

It is just a difficult business to make money from but I think my time is better off spent hassling the likes of Mark Gustafson and Michael Travia rather than Gary Shaw and his team so all the best!

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