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Veltyco Group plc: THE INVESTMENT CASE

Veltyco all set for sizeable boost to revenues and cash

“The business is involved in running marketing contracts for a number of brands”
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INVESTMENT OVERVIEW: VLTY The Big Picture
Betsafe casino is one of Veltyco's earners

It’s only been listed on the AIM market for a matter of months, but already Veltyco Group (LON:VLTY) has issued a strong statement of intent.

In results for the six months to June 2016 the company delivered a 78% increase in sales to €2.1mln and a 134% increase operating profits to €471,000, as its activities in marketing its clients’ online gaming offerings stepped up a gear.

The increase came as the company announced the September signing of a fourth client, ZoomtraderGlobal, which takes the total client portfolio to four.

“The business is involved in running marketing contracts for a number of brands,” says chairman David Mathewson.

The company has exclusive rights to market Betsafe in certain territories, and LottoPalace, Option888 and Zoomtrader globally. The idea is that in return for its marketing efforts Veltyco is entitled to a percentage of net revenues generated by the operators of the brands in question.

If that sounds a bit niche, then consider this: the online gaming market generates €30bn a year in gross revenues, where online sports and casinos account for €25bn, lotteries €3bn and options trading €1.8bn.

That’s a significant enough market for a company like Veltyco to be addressing, given that its own capitalisation is a mere £15mln, but it already has experience across all those spaces, since Betsafe offers casino and sports-book platforms, LottoPalace has access to a range of Global lotteries and Option888 and Zoomtrader access the more specialised financial areas of the market.

The key though, isn’t just to pick up customers; it’s to make sure that the type of customers that are acquired stay with the platforms in question.

This is a slightly nuanced point, but is crucial to Veltyco’s longer-term offering. If a customer signs up with a €200 deposit that’s all very well, says chief financial officer Marcel Noordeloos, but if they then don’t do anything else, then neither the platform nor Veltyco has gained a great deal.

This is why Veltyco is incentivised on a revenue-share basis. It’s not about driving traffic to web sites in absolute terms, it’s about making sure that the type of people that get marketed to are the ones who will sign up and stay on for the longer term.

This is where Noordeloos and Veltyco’s chief operating officer Uwe Lenhoff bring the real value-add.

Noordeloos was chief financial officer at Playlogic between 2009 and 2011 before he joined Veltyco. Lenhoff, meanwhile, is described in marketing literature as “a pioneer in online gaming” and boasts time spent with Party Poker and Full Tilt Poker on his CV as well as B2B relationship with Betsafe that goes back four years.

These qualities now look like coming together inside Veltyco in way that could create a significant opportunity for investors.

Broker Northland values the company at 40p per share using a discounted cash flow model, and assuming that revenues rise to €8.7mln next year and €10.6mln the year after.

At that rate of growth, because costs are low and margins wide, net cash should rise from a negligible €15,000 last year, through to €759,000 this year, €4.2mln next year and nearly €9mln in 2018.

That’s quite some going for a small cap company and goes a long way towards explaining why Northland calls the current rating at 21p “undemanding.”

“We’re very excited about this,” concludes Mathewson. “Our base line is to grow earnings per share for shareholders.”

As far as that mission is concerned, the company is well on track.

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