THIS IS NOT A TIP OR RECOMMENDATION. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITE. IF YOU COPY MY TRADES, YOU WILL PROBABLY LOSE MONEY. I HAVE A LARGE PORTFOLIO AND I USE DIVERSIFICATION TO SPREAD RISK ALONG WITH TRICKS LIKE HEDGING AND OCCASIONALLY BY THE USE OF STOPLOSSES - IF YOU BUY ANY STOCK YOU REALLY SHOULD FOCUS ON HOW IT FITS IN WITH THE REST OF YOUR PORTFOLIO AND KEEP RISK MANAGEMENT AT THE FOREFRONT OF EVERYTHING YOU DO. BE AWARE THAT ALL INVESTORS/TRADERS GET THINGS WRONG AND MANY STOCK SELECTIONS WILL WORK OUT BADLY.
Clearly this is the second part of a 2-parter about TM17. If you have not read it yet you can find the first part under this one on the ‘Stocks & Markets’ blog page, but just cos I am so incredibly nice to you, here is a link straight to it: https://wheeliedealer2.weebly.com/stocks--markets-blog/stock-idea-team17-tm17-part-1-of-2 Since I published that blog I have actually bought some TM17 myself at 344p and if you go to the ‘Trades’ page on WD1 then you can read more details about it.
Recent Trading
There was a Trading Update issued on the 4th November 2019 and you can find it here: https://polaris.brighterir.com/public/team17/news/rns/story/wk034dx It is short and sweet but the key bit is: “and now expects both adjusted EBITDA and revenue to be ahead of market expectations for the current year”. There really is little better than beating forecasts and this is one of the key reasons I decided to buy some TM17 Shares recently. SharePad ‘Phil Oakley’ Charts One of the really handy features in SharePad are the ‘Phil Oakley’ Charts which were set up when Phil used to be a Contributor at SharePad and before he defected to Investors Chronicle where he writes excellent articles that cover several pages every week. If you go to the ‘Financials’ Screen and click on ‘Summary’ you get the Screen below and for the following Charts I have used the ‘Ctrl +’ function to zoom in and make the Phil Oakley Charts much larger. Because TM17 is fairly new and it does not pay a Dividend, a lot of the Phil Oakley Charts are of limited use, but I have picked out a few that are helpful for my own personal needs. If you are a SharePad user, I suggest you look at all the Charts that are available for TM17 and pick out the ones that are important for your own needs.
I am particularly fixated on Cash Generation and the Phil Oakley Charts include several that help assess this situation. This first Chart looks at how well TM17 converts Operating Cash Flow into Free Cash Flow and it looks fairly good.
Next up another one related to Cash Generation and this shows that TM17 converts a high amount of its Earnings Per Share into Free Cash Flow per Share.
The next Chart looks at Free Cash Flow Margin and although it is over the 15% that Phil suggests is good, it has been dropping off in the latest year and clearly this is something to monitor. There is notably some variation here though.
On the next Chart TM17 appears to be doing quite well by Phil’s standards, but again the lack of real history here means it is not really definitive and although it appears pretty good we should be wary.
The next Chart suggests that TM17 might be under-investing, so this is something Readers could look into further if they so wish.
Dividend Policy
I took the text below from the Admission Document: ‘The Directors intend to reinvest a significant portion of the Group’s earnings to facilitate plans for further growth. Accordingly, whilst the Directors do not expect to declare any dividend in respect of the current financial year ending on 31 December 2018, it is the Board’s intention, should the Group generate a sustained level of distributable profits, to consider a progressive dividend policy in future years. Declaration of dividends will always remain subject to all applicable legal and regulatory requirements and recommendations of final dividends and payments of interim dividends will be at the discretion of the Board. The Board will not exercise such discretion where it is not commercially prudent to do so taking into account the policy set out above. Whilst the Board considers dividends as the primary method of distributing profit to shareholders, it may, at its discretion, consider share purchases, when advantageous to shareholders and where permissible. The Company may revise its dividend policy from time to time.’ Valuation The ScreenShot below I took from SharePad on the evening of 19th December 2019 when the Share Price for TM17 was 343p:
On first glance a Forward P/E of 32.7 looks quite meaty so let’s do a bit of work on that number to get something more ‘accurate’ because that does not allow for the Cash Pile that TM17 holds. The ScreenShot below again comes from SharePad and this gives the Consensus Forecasts that are in the market for TM17:
Going back to the ‘Half Year Results’ RNS announcement from 10th September 2019, I can see that TM17 at that point held £35.8m of Cash and that is the only figure we have so I will use that to re-calculate the Forward P/E Ratio.
From that earlier SharePad ‘List’ Screen I showed, I can see that the Price at the time of writing this is 343p and the Market Capitalisation is £450.3m. First off we need to work out what £35.8m of Cash means in terms of the Share Price and we get this by the following simple maths: X divided by 343p = £35.8m divided by £450.3m So, X = (35.8 / 450.3) multiplied by 343 X = 23p. Therefore to work out the Forward P/E, we take the Forecast for 2019 of 10.5p and do the following bit of maths: 343p minus 23p (this gives an ‘Enterprise Value’ by stripping out the Cash) divided by 10.5p = 30.5. For 2020, we take the Forecast of 11.1p and the maths is now: 343p – 23p divided by 11.1 = A Forward P/E of 28.8 For 2021, we take the Forecast of 12.1p and the maths is now: 343p – 23p divided by 12.1 = A 2 Year Forward P/E 26.4 That gives a more realistic Forward P/E for TM17 but you would be stretching things to call it cheap. The key here is if it can continue to beat expectations; if it can do so, then the Forward P/Es are actually a lot lower than they appear. Unfortunately, TM17 does not pay a Dividend but if and when it does start to pay one, that would be a very positive development. Judging by the Cash Pile TM17 has in the last set of Results, I suspect a ‘maiden’ Dividend Payment can’t be far off although of course this Cash could easily be spent on an acquisition or two. Targets As always doing this section is a bit of guess work but it gives a feel of where TM17 might get to if things go as I would like them to play out. Looking at that Table of Forecasts from SharePad that I just showed in the ‘Valuation’ bit, I think an Earnings Per Share (EPS) figure of about 15p would be possible in a few years time. This would especially be the case if TM17 do some acquisitions and if they can ‘beat expectations’. If we take this imaginary figure of 15p for the EPS in a few years, and we apply a Forward P/E Ratio of 25 to it, then we get a Target of 375p. However, this of course is a lower P/E than TM17 is actually being awarded at the moment, and if we make the assumption that TM17 will continue to impress the Market and to consequently be traded on a Forward P/E of 30, then we get to a Target of 450p. I think that is fairly reasonable and I don’t see why a Target of 500p wouldn’t be impossible with patience and a few years down the track. If it can do this, that would be a nice Return of 45% on my Buy Price at 344p. Technical Picture All the images I show below I took from SharePad on the evening of Friday 20th December 2019 and if you click on them then they should appear larger on your screen. First off here is a Chart which is very similar to one I showed in my Weekend Blog recently and this is all of the history for TM17 since it listed on the Stockmarket. The story here is that for the first 8 months or so of its life on the Market the share price went mostly sideways, but then early in 2019 the Uptrend Channel that is captured within my Parallel Black Lines started and at the time of writing that Channel is still in force. My Red Ellipse shows where the Price dropped back from the Upper Resistance Line of the Uptrend Channel and the Horizontal Green Line (pointed at with the Green Arrow) marks the 344p level at which I bought my Share Position.
On the next Chart I have zoomed in a lot on the one I just showed and my Blue Arrow is pointing to a sizeable Black Down Candlestick that was created on Friday 20th December and this suggests we will see a bit more of a drop in the days ahead. The crucial thing is that Support at the bottom Black Line holds and that means that 310p must hold – it would probably still be ok if it touches 300p but it must rebound quickly afterwards or we will see more falls.
It would be a bit annoying if it was to fall like this, but on the other hand I only have a ‘Starter Position’ for now so it would not be the end of the world if I could pick up more Stock at a much lower price.
Conclusion
Clearly I am quite happy with what I see at TM17 because I took the plunge recently and bought some Shares and my intention is to buy more fairly soon and I might even do a Long Spreadbet on them. As I have explained, I am very much of the view that Video Gaming is only going to grow and grow in its popularity and use and TM17 I think is a decent way for me to get exposure to this major trend. I am particularly impressed by how TM17 has announced they will beat Market Expectations and I would not be surprised if they continue to do this and I note that the growth implied by the Forecasts is pretty low and this could easily be understating what will happen in reality. TM17 has been established for a long time and were involved in the Gaming space when the whole sector was a lot younger – so they clearly have considerable experience and have a proven ability to navigate the various rapid changes in technology that have impacted the sector in both positive and negative ways. On top of this TM17 has a very strong Balance Sheet with £35.8m of Cash and this reduces the risk of investing in it a lot and I quite like this set of 4 Bar Charts from the Annual Report – pretty much all heading in the right direction:
With a very nice Uptrend as I have shown in the section on Charts this looks a very promising Stock and I am happy to now be holding some Shares with a view to adding more.
Regards, WD.
4 Comments
7/30/2020 02:45:18 am
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