Shares of Jackpotjoy (LSE: JPJ) — formerly Toronto-listed Intertain Group — are trading 2% higher following the release of its first-half results today.
The company, which describes itself as “the largest online bingo-led operator in the world,” posted strong growth in revenue (13%) and adjusted EBITDA (15%) for the six months to 30 June. And there was an impressive acceleration of growth in Q2, with revenue increasing by 17% and adjusted EBITDA by 28%.
Despite the strong performance and the shares trading at a new high of 680p, a company-commissioned research report published this morning suggested “the stock trades at a significant discount to peers” and advised “we would expect a re-rating as the market regains confidence in the business.”
Lack of confidence
On the face of it, a forecast P/E of 7.1, falling to 6.1 next year, is dirt-cheap. So, what’s behind the market’s lack of confidence?
It may be lingering doubts about Jackpotjoy’s antecedents as Intertain when it came under attack in a report by short-sellers Spruce Point. An independent committee appointed by Intertain dismissed most of Spruce Point’s allegations but the upshot was a major boardroom overhaul and a decision to change the company’s name to Jackpotjoy and move its listing to London.
Chief financial officer Keith Laslop survived the purge, having also previously emerged little scathed as a director and chief operating officer of the somewhat notorious Gerova Financial. He had rubbed shoulders (as a defendant in a civil lawsuit but not in a subsequent criminal trial) with Gerova fraudsters Jason Galanis and Gary Hirst.
Then again, perhaps some investors are concerned by Jackpotjoy’s still-high level of debt, its lossmaking statutory profit numbers or simply the business dynamics of online bingo. At any rate, I see the company as sufficiently problematic to put it on my list of stocks to avoid.
Cunning plan
At a current price of 59p, shares of Tungsten (LSE: TUNG) are 85% down from their September 2014 high of 400p, despite the company’s revenue having increased threefold in the intervening period.
Tungsten was founded by City financier Edi Truell and raised £160m in 2013. It bought a long-time lossmaking and near insolvent US e-invoicing firm for £101m. The firm as it stood was worth next to nothing — Tungsten booked £98.7m as goodwill — but Truell had a cunning plan to use its large database of buyers and suppliers to create a lucrative invoice discounting business, offering early payment facilities to suppliers. To which end Tungsten also acquired a subsidiary of an Israeli bank for £30m.
In search of a profit
To cut a long story short, Truell subsequently departed, the company sold the bank in favour of third-party financing and the financing business still hasn’t taken off, with Tungsten reporting revenue of just £152,000 in its latest financial year.
New management has had some success in bumping up prices in the e-invoicing business and flogging customers add-ons such as spend analytics. A decreased EBITDA loss to £11.8m from £16.2m was hailed as progress but it was helped by the company capitalising software development costs (£3.6m) for the first time in its history.
Tungsten remains a company in search of a way to make a profit and an impairment of that £98.7m goodwill is surely overdue. It remains firmly on my list of stocks to avoid.
