TRANSGAMING INC. V.TNG

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The Gold Report

Thursday, 2 July 2015

TransGaming Profits Big After Selling Assets To NVIDIA

TransGaming Inc: TNG (Canada), TNSGF (US)
Current Price: $0.065
Shares Outstanding: 116,797,889
Market Capitalization: $7,591,863
Price Target: $0.25 (1-year target)

While the market has faced downward pressure related to Greece and summer time trading doldrums, recent picks from The Gold Report have remained quite strong. MBAC Fertilizer Corp. (TSX: MBC) closed the first half of the year at 11.5 cents, up from 10 cents since some positive developments as reported here two weeks ago and up from 2.5 cents since The Gold Report first covered it as a strong buy in early April. Eurocontrol Technics Group (TSXV: EUO) has had a healthy pull back from 15 cents to 11 cents after nearly doubling since The Gold Report first made a long call on it at 8 cents on May 25. Its trading appears very similar to what MBC had done when it pulled back to the 7-8 cent range. Expect it to challenge its recently made 52-week highs soon as investors will speculate over its next financial quarter after showing a 0.6 cent EPS last quarter. Continuing that financial performance will value the stock at 30 cents, even when completely discounting its growth potential.

The Gold Report's two health care related picks iCo Therapeutics Inc. (TSXV: ICO) and CardioComm Solutions (TSXV: EKG) have had steady trading over the past several weeks. Mobio Technologies (TSXV: MBO) has traded down over the past couple of weeks, but is still up from the call at 3 cents made in April as Salman Partners has been aggressively buying into MBO's new business strategy and activities behind the scenes appear to be happening with Mobio Insider. MBO's CFO Kevin Rathburn recently participated in the private placement at 6 cents, purchasing $15,000 worth, which points to continued bullishness on the company to come.

The most successful pick from The Gold Report recently has been Partner Jet (TSXV: PJT), which has more than doubled from $0.46 to $1.05 since the buy recommendation made on June 8. Investors are aggressively buying up the stock in anticipation of Q2 results that should be coming up in 3-4 weeks. PJT has been a rare find on the TSX Venture as a stock with revenue growth in excess of 100% while still at a low valuation. At the time of the report PJT had a P/E ratio of only 5. The P/E ratio sits at 10 right now which is still a very low number and if the company puts up another 3+ cent EPS, the trailing four-quarter EPS will surpass 10 cents and PJT will once again have a single digit P/E at this low stock price. It is possible that PJT will surpass The Gold Report's $2.70 target based on the thin float should the financials continue to improve at the pace they have gone.

With the overall market hitting its summer doldrums comes more buying opportunities. Two weeks ago, TransGaming Inc. (TSX: TNG) announced the sale of its proprietary cross- platform portability technology to NVIDIA Corporation (NVDA) for US$3.75 million. The transaction included part of TNG's Graphics and Portability Group and includes Cider™ but excluded SwiftShader, the world's fastest pure software 3D rendering technology. TNG stated that it will record a large one-time gain in the first quarter of its 2016 fiscal year (ended August 31, 2015) reflecting the value unlocked from the sale. Despite this great news, TNG has mostly pulled back from an initial strong move up that doubled the stock price.

The Gold Report believes that now is the opportune time to buy TNG as the 6.5 cent close on June 30 leads to a market cap of only $7.6 million. The purchase price for the Cider assets was $3.75 million in U.S. Dollars which translates to $4.7 million Canadian, or 4 cents per share, giving TNG plenty of cash to work with to expand its other businesses. The company will record at least a 3 cent EPS in extraordinary income thanks to this deal, as it has only $1 million in long term assets and goodwill on its balance sheet and only a small portion of those were sold in this deal.

TNG's stock price has tanked throughout 2014 until now due to the company's burn rate and poor revenue growth during that time. Revenue dropped 28% for the quarter and 36% for the nine months ended February 2015:

Despite this drop, TNG was able to get $3.75 million for just a piece of its GPG group, which in itself represents a shrinking piece of the overall revenue pie for TNG. With the GPG group representing 45% of overall revenues for the past nine months and 33% of revenues for the past quarter, TNG sold no more than 25% and likely as low as 10% of its revenues for the $3.75 million from NVDA. Assuming a similar value for the rest of its businesses, the price tag for all of TNG's assets would be anywhere from 4 to 10 times the amount the company got from the NVDA deal, or $15 million to $37.5 million USD. The would lead to a TNG stock price of anywhere between 16 cents to 40 cents. TNG has stated in the past that it intends to sell SwiftShader, the other significant asset in the GPG group so that it can focus its efforts on aggressively growing the DMG group, namely GameTree TV. If it is successful in selling SwiftShader, the price would likely be equal to or greater than the transaction with NVDA and mean that TNG trades at a market cap that's lower than its cash value at 6.5 cents.

The company has provided its strategic update in its last reported MD&A:

When reading TNG's four key areas in order to drive shareholder value, it paints a picture of a company that is doing what it takes to attain profitable growth. The sale to NVDA largely covers off point 1, enabling TNG to pay off its debt and eliminate any risk of insolvency. TNG has implemented a cost containment program including the restructuring of the Toronto office, which may involve NVDA taking over that office space. The expectation of a subscription-basedrevenue model forGameTreeTVbytheendofthisfiscalyear raises hope that revenue can get back to positive growth in the coming quarters. TNG outlined recent business developments and drivers for growth for GameTree TV in its MD&A:

The Gold Report believes that an appropriate one-year target on TNG is 25 cents, which is in between the low and high valuation estimate mentioned above of 16 to 40 cents. The NVDA deal proves that there is substantial value locked within the company's technology even if revenue has struggled to grow over the past year. If TNG can successfully monetize its remaining technology and can demonstrate a turnaround in revenues in the coming quarters, the stock price can grow well beyond 25 cents.

Global Maxfin Capital has issued a strong buy with a 60 cent target price throughout 2014 on TNG. So there are other members of the financial community that are more bullish on TNG than The Gold Report.

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