The threat of higher taxes for UK companies with offshore internet operations means that NetPlay TV (NPT:AIM) needs to accelerate plans to expand overseas. While it only gives a passing reference to geographic expansion in today's half-year results – decent numbers send the stock up 1.3% to 19p – we can reveal the cards that the company has up its sleeve.

As we discussed in a recent gambling sector report, likely tax changes will force companies like NetPlay to either cut costs or increase the percentage of revenue they derive from non UK-based customers. Chief executive officer Charles Butler tells Shares that plans are being constructed to address both issues.

Firstly, NetPlay reckons it can consolidate some operations. At the moment, its TV broadcasts are filmed from two locations: London and Guernsey. As we discussed in this article, revenue share agreements from affiliates will be restructured so the partners take their share of any tax hit. Furthermore, NetPlay's agreement with broadcasters is based on revenue share, with a minimum guarantee. Butler implies there's an offset clause which can apply to any tax hike.

As for overseas ventures, it remains in talks with an undisclosed party in Italy. The market's slowed down of late, so NetPlay is still deciding if it wants to proceed with said company. What could be more promising is a move into the Netherlands. The market is set to be regulated from January 2015, so NetPlay is now looking to see if it can run some test promotions beforehand. Over the next 12 months it expects to have some low-key marketing tests.

The company is also debating a move into grey markets that could become regulated in the near future. Any move would be via pure online gaming, whereas expansion into a regulated market would continue the TV broadcast model (and online) that powers the UK operations.

Butler doesn't believe NetPlay would lose its unique selling point by not having broadcast operations in a 'grey' market. He says there would still be interaction as the live dealer would be broadcast via the web. While Playtech (PTEC) already provides such a service to many other online gambling operators, NetPlay still believes its offering is different.

Half-year results, published today, show the company to be in great shape. Pre-tax profit is up 47% to £2.3 million, the dividend's gone up 20% to 0.18p and cash generation continues to be very strong. The start of the second-half period saw a blip in July but has bounced back in August.

The company's TV sponsorship of Big Brother looks to be paying off. Butler says NetPlay normally advertises on TV from 10pm to 11pm onwards, ahead of its gambling broadcast from midnight. The Big Brother sponsorship means its brand was exposed to the public from 9pm onwards. 'While it is difficult to exactly monitor the number of new customers being driven to us via the sponsorship, there's certainly been an uplift in customers between 9pm and midnight when Big Brother is shown.' He adds: 'I would certainly do the sponsorship again.'

NetPlay is a running Shares Play of the Week, currently up 58.3% since we said to buy at 12p (20 Sep 2012) – and was also one of our top picks in last week's gambling sector report. You can read other articles we've published on NetPlay this year here and here.

Issue Date: 10 Sep 2013