Intertain Group could see further upside from M&A, says Clarus

Intertain Group’s (TSX:IT) acquisition of Mandalay Media could deliver further upside to the stock, but so could M&A that might be coming down the pipe, says Clarus Securities analyst Eyal Ofir.

On August 11th, Intertain reported its Q2, 2014 results. The company posted revenue of $5.22-million.

“We are pleased with the progress that the company has made in the second quarter,” said CEO John FitzGerald. “Mandalay’s bingo product will augment Intertain’s existing business as it will help diversify our current casino offering and provide the company with immediate access to new markets and a robust player base. In addition, we were able to secure the business after a successful marketing campaign, paid for by Mandalay’s vendors, which gives us a significant and ongoing advantage in terms of player acquisition and retention.

Ofir says Intertain’s bottom line results exceeded his expectations, while the topline was essentially a “non-event” that met his and the street’s expectations. He says one interesting data point is the performance of Mandalay Media, which Intertain acquired on July 14th. The analyst notes that Mandalay is tracking to earn more than $3.8-million on a topline of more than $8.6-million, ahead of numbers he is currently modeling.

An even larger catalyst, says Ofir, is the very real potential for further M&A. He notes that on recent competitor conference calls a significant increase in activity in the space has been a recurring theme.

In a research update to clients Tuesday, Ofir reiterated his “Buy” recommendation and one-year price target of $8.88 on Intertain Group. This target, he explains is based on 14x his expectation for Intertain Group’s 2016 earnings. The target implies a return of 18.6% at the time of publication.

Shares of Intertain Group closed Wednesday at $7.11.