Extra Material from October 2026 Newsletter

We could not squeeze this article about Nexteq (NXQ) into our busy October newsletter, due out this coming weekend, so we are posting it here for subscribers.

Nexteq     

41p (NXQ; AIM)

Nexteq’s interim results for the six months ended June 30 reflect a business still navigating severe market headwinds, particularly in land‑based gaming, but continuing to make strategic progress in diversification, product development and operational restructuring. Group revenue fell 34% year‑on‑year to US$26.7m, driven almost entirely by a 53% decline in Quixant, where North American gaming customers sharply reduced cabinet volumes amid tariff‑driven cost inflation and elevated component pricing. Densitron, by contrast, delivered stable revenue (+1%) and record gross margins, underscoring its role as the group’s defensive anchor. Gross margin contracted to 30.3% (H1 2025: 33.1%), reflecting Everi’s consolidation, DDR4 memory inflation and a less favourable customer mix. Adjusted EBITDA swung to a US$2.8m loss (H1 2025: US$1.9m profit), while adjusted pre-tax profit fell to a US$4.0m loss. Cash generation was weak, with adjusted operating cash flow at minus US$0.4m, influenced by lower trading volumes and strategic inventory investment.

Operationally, Nexteq continued to execute its three‑year plan. Customer retention remained strong, and component management mitigated supply‑chain volatility. Importantly, commercial progress was visible across IP‑led initiatives: Launchpad onboarded three new customers, IDS secured two new control‑software agreements, and three Broadcast wins moved into mass production. These wins support the group’s strategic pivot toward higher‑margin, software‑enabled and diversified revenue streams, though meaningful P&L contribution is not expected until 2027–28.

For the current year, management reiterated guidance, supported by 83% order coverage and the group’s typical second‑half weighting. However, gaming market conditions are expected to remain difficult through 2027, with tariffs and component inflation continuing to suppress customer confidence. Nexteq’s medium‑term investment case therefore hinges on its ability to execute its diversification strategy: scaling Launchpad, expanding advanced display solutions, and improving operational efficiency through restructuring. North America is a particularly tough market when battling cost pressures, but the company’s confidence that customers are not being lost gives hope that demand will recover strongly once costs stabilise and/or replacement cycles make new purchases essential. Hold.