Intertain Group gets new $8.00 price target from Clarus

Intertain’s (TSX:IT) planned acquisition of online bingo player Mandalay Media removes risk from the company’s story, says Clarus Securities analyst Eyal Ofir.

On Wednesday, Intertain announced the planned acquisition of the U.K.-based Mandalay for 45-million British pounds, plus a performance contingency of 15-million pounds.

Intertain Group CEO John Kennedy FitzGerald said the pickup gives the company things management felt it was lacking.

“We are excited about the acquisition of Mandalay Media, which will add substantial free cash flow to our existing business,” he said. “As we have previously stated, bingo and sports betting are a key verticals missing from our current gaming platform supplied by Amaya Gaming Group Inc. This bingo acquisition will add a missing gaming vertical, a bingo-focused marketing team, diversify our current casino offering, and is expected to be materially accretive to earnings per share and free cash flow. In addition to these important milestones, our existing brand, InterBingo will now have a leading bingo platform to reside.”

Ofir says a key aspect of the Mandalay acquisition is that it will give Intertain a leg up in entering new regulated markets. He says with a larger team the company is better positioned, and it can realize cost synergies in things like marketing expenses. The deal also makes eminent financial sense, says the Clarus analyst.

“Our analysis for this transaction shows significant accretion even under the most conservative assumptions, said Ofir. “The planned acquisition would significantly de-risk our forecast…”

In a research update to clients yesterday, Ofir maintained his “Buy” rating on Intertain Group but raised his one-year target price to $8.00, up a dollar from his previous $7.00 target. Once closed, the pickup could drive his 2015 earnings estimates from $0.32 to $0.48-$0.57, he says.

At press time, shares of Intertain Group were down .9% to $5.40.

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