Clarus raises target on Intertain Group to $8.88

Intertain Group’s (TSX:IT) first major acquisition will provide it with “another lever” for organic growth, says Clarus Securities analyst Eyal Ofir.

Last Thursday, Intertain announced it has closed a $103.5-million bought-deal offering that would enable it to complete the acquisition of U.K.-based online bingo player Mandalay for 45-million British pounds, plus a performance contingency of 15-million pounds.

Today, the company announced it had completed the all-cash acquisition. CEO John Kennedy FitzGerald commented on the deal.

“We are very excited about the acquisition of Mandalay Media, which will add substantial free cash flow to the business and enhance our current casino offering to include a bingo segment,” he said.

Ofir says the pickup of Mandalay, which generated more than £7.9 million in net income on revenue of over £16.1 million, is earlier and larger than he previously modeled, causing him to raise his earnings estimates. He now believes Intertain will earn $0.62 a share in fiscal 2015 and $0.63 a share in 2016, up from his previous estimates of $0.32 and $0.46, respectively.

In a research update to clients this morning, Ofir reiterated his “Buy” recommendation and raised his one-year target price to $8.88, up from his previous $8.00. The target is based on 14x his estimate of Intertain’s 2016 adjusted EPS.

Ofir believes that the pickup of Mandalay is not the last acquisition we will see from Intertain. He thinks management may look to add a sports betting operation in the months to come.