UK 17:34 Friday, 23 October 2026
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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.
With shares in Nektan (NKTN) dropping significantly this week following the resignation of its CEO and the share price now down at 107p and a market cap of £25 million, I wanted to do a piece on why this stock, ignoring the micro-caps, was my bear pick for the year and why I have been bearish on it more generally for a while.
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Comments
BRITTA
Might I suggest that would would help readers if you put an executive summary up front – or at least an introductory sentence saying what your core thesis will be. (Here it seems to be that cash spend is greater than cash generation). Your articles don’t err on the side of brevity.
Interesting, a company that is not (yet) making a profit but might do so in the future would actually put it ONTO the radar for many investors, who are looking for that tipping point when a company moves to profitability (and de-risks and re-rates accordingly). You give your opinion that they will struggle to cut costs/increase revenue sufficiently to make these balance, but with very little evidence-based reasoning.
“Being generous, I still struggle to see how it could do much over £2 million in revenue in the current financial year to 30 June 2016, and although I am sure that the cost base has been cut I can easily see this business still burning at least £5 million in the financial year and that wouldn’t leave it with a lot of surplus cash for the year ahead.”
I’m afraid that bit comes across as little more than opinion (/guesswork). Sorry. What I would like to see is some research and evidence as to what the business trajectory will be over the medium term. Then I can make my own decision.
Drunken Sailor
BRITTA you don’t want much from a FREE site. You complain his articles are too long but want him to do extensive research and justify a very complex analysis, which would have to be based on a whole load of assumptions as the data is not out there in the public domain. Either do it yourself and post it for free for everyone else or go and pay an analyst an arm and a leg to do a load of guess work and still be miles off.
The executive summary is: There are a growing number of red flags against a cash burning company that clearly needs to raise a lot more money to maybe never deliver a penny back to shareholders.
Is that good enough for you for free or do you want to complain that it is not in depth enough for you?.
The point I was going to make was beware of companies that issue large quantities of convertible debt. It may seem to be win – win for issuer and receiver but it is lose – lose for ordinary shareholders, if the company does well they get diluted suddenly and that acts as an anchor on the share price, if the company does badly there is massive and quite expensive debt which destroys NAV. Never be fooled by a conversion price, they can be renegotiated very easily. At some point they will be running back to the holders of those CLNs and saying will you take some more and the answer will be: not at that conversion price and coupon we will take some at a lower conversion price and increased coupon, provided you amend the price and coupon of our existing notes to match the new ones.
Online gambling is a dodgy sector, there are all sorts of regulatory nightmares lurking and it is already a pretty crowded space and I have never seen the point of sitting on the bog with your mobile phone out losing money. If you want to gamble, have a night out at the casino or the dog track etc with some mates and a few beers – it should be a social thing, there is nothing social about losing money over a mobile phone app.
Cynical Bear
@Britta – yes there is some estimation and guessworkk here and is my opinion but based on a bit of experience in the space. Also in my experience the CFO and CEO don’t suddenly leave a business that is doing more than 300% growth year and year and flying towards profitability.
Let’s discuss further in a couple of months when the interims are due and seriously you need an exec summary for 1000 words – how do you do research?
@Drunken Sailor – good point on the impact on shareholders of convertibles
Cynical Bear
@Britta – you may gave a point that my numbers could be more robust so I’ve had another look at the data. Nektan did state that q1 revenue for RMG exceeded the whole of last year so I guess that the revenue for the half could be in excess of £1m. If the U.S. picks up this year, then revenues could grow further in H2 but I still think much above £3m will be tough considering the senior team changes. I’ll change the piece above to reflect that.
Assuming a constant gross margin of about 40% leading to a gross profit of say £1.2m which still leaves a significant cash burn even if one assumes a decent cost-cutting exercise so remain comfortable with my £5m estimate.
Appreciate the feedback.
Let’s see how it plays out. I advise all to DTOR but happy to continue the chat in late March or sooner if there is a trading update