$NPT.L – NetPlay TV – a Magic Hat disaster

Gaming company NPT (NetPlay TV) issued its Q3 trading update yesterday, in which it said: “Despite the Group’s level of marketing spend, it has not achieved the targeted levels of new customers and net revenue expected from this spend. This situation combined with the current trading environment, and the initiation of POC means that the Board expects current market expectations to be materially lower than forecast.”

The shares closed down 17.7% to 8.12p. NPT was added to the Magic Hat portfolio in early August at 12.25p (http://is.gd/1XlNqw). I warned at the time that “my track record with gaming stocks is atrocious”. With the selection of NPT in the Magic Hat portfolio, my track record continues untarnished. My conclusion is that all gaming stocks are univestable. NPT only has a market cap of £24m, so it is probably more vulnerable than most to business setbacks.

I will keep NPT in the Magic Hat portfolio for its entire year, but I’m not a happy bunny. This was one stock that I should have overridden the mechanical pick, and I have paid the price. If I had to guess, I would say that the price when its year is up in the Magic Hat portfolio will be lower then than it is now. My hunch is that, despite the increases in revenue, the abundance of cash, and low P/FCF, this company is headed to the toilet. We shall see.

Paul Scott commented on the stock at Stockopedia yesterday (http://is.gd/5tsMvu): “the relatively small (£10k & £20k) Director buys in recent months now look to have been done more for PR reasons, to arrest the share price decline, than on fundamentals”. Exactly! That’s why I think we haven’t seen the end of this mess.

Private Punter (http://is.gd/1W9Jah) wrote about the company yesterday, and his full article can be seen on Cambridge News (http://is.gd/qE0og5): “While the growth label has effectively for now at least been cast aside, it is, on a value basis, where the shares may retain appeal, presenting a nice yield via the dividend.”

His post seems fair, and I don’t detect any rampiness in it. It certainly is a quandary. What I will say, though, is that the sentence I quoted sent a chill down my spine. To quote David Einhnorn: “We avoid ‘evolving hypotheses.’ If our investment rationale proves false, we exit the position rather than create a new justification to hold”. In other words, growth shares should not become value shares. If they do, then you are likely wrong twice.

Happy investing to you all.

Edit 20-Oct-2014: Removed stray text that appeared at the end of the post due to posting via email.

Edit 22-Oct-2014: Emboldened share price for ease of identification.

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About mcturra2000

Computer programmer living in Scotland.
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3 Responses to $NPT.L – NetPlay TV – a Magic Hat disaster

  1. soicowboy says:

    Interesting post, more for your display of behavioral biases than useful analysis.
    Are you familiar with ‘long term view’, ‘process over outcome’ etc.
    If you couldn’t foretell the future 2 months ago, why bother now?

    NPT generated decent sums in recent years. They have a bit of a moat. Why do you think they are dead in the water now?

  2. soicowboy says:

    Hi Mark,
    I am sorry that my message above comes across as a bit brusque.

    From reading some of your other posts, I am sure that you aim to take a long term view (though only a year in this portfolio), and you are sticking with your process despite the disappointment with this share so far. That is important.

    I was simply struck by the emotional content of this post.

    Regarding NPT, I can’t see that there has been a huge change since your purchase. They had already said that they were increasing marketing spend. Now they have found out that it isn’t working as expected, leading to a poor result this year.
    I am loath to extrapolate this this to a poor result for future years. Reversion to prior profitability is a distinct possibility, the impact of the new tax providing the greatest uncertainty.
    A one year window is probably insufficient though.

    Cheers,
    soicowboy

    • mcturra2000 says:

      I hadn’t intended my post to be emotional. I think I had fallen straight into a value trap.

      Previously, I thought that the market was overdiscounting the PoC tax. Now I am thinking that the market is underdiscounting the fragility of the business model. Possibly. Obviously, I don’t know for sure, or even with a high degree of accuracy. I think that there is something about NPT that doesn’t smell right. There are very few certainties in this game, only judgement calls.

      I concluded to keep it in the portfolio, as it is a largely mechanical one and things can turn around. My intuition is that the price will be lower than 8.12p when I come to sell it, and I wanted to put that on record to see if my hunch pans out.

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