Amaya Gaming gets new street-high $36.00 target from Clarus

The nearly $5-billion price tag that Amaya Gaming (TSX:AYA) is paying for the company that owns the Poker Stars and Full Tilt Poker brands has grabbed headlines, but the story will soon turn to how quickly the resultant company’s earnings power will enable it to pay down its debt, says Clarus Securities analyst Eyal Ofir.

Midway through last month, Amaya announced that it would acquire Oldford Group Ltd., the parent of Rational Group Ltd., the world’s largest poker business and owner and operator of the PokerStars and Full Tilt Poker for a staggering $4.9-billion, a number equal to approximately five times Amaya market cap at the time.

In a research update to clients this morning, Ofir reiterated his “Buy” recommendation on Amaya Gaming, but raised his one-year price target to $36.00, up from $12.00.

Ofir believes the new Amaya will deliver more than $2.50 in earnings power by fiscal 2016. He sees growth coming from the expansion of the PokerStars brand into gaming verticals it had not explored, such as social gaming, sports betting, and physical casinos. He also sees a lot of runway in the U.S. market. While the PokerStars brand is more saturated in Europe, just three states have to date have cleared the regulatory path for online gaming, with many more, including the important California market, expected to do so.

The scale of the Oldford transaction is reflected in Ofir’s new revenue and earnings targets for Amaya Gaming. For fiscal 2015, he sees the company posting EBITDA of $682-million on revenue of $1.62-billion, up from his previous estimate of $109-million on $245-million in revenue. The following year, he expects Amaya will post adjusted EBITDA of $781-million on revenue of $1.82-billion.