Intertain Group gets price target raise to $12.50 at Clarus

Clarus Securities analyst Eyal Ofir says he expects Intertain Group (TSX:IT) will make an acquisition worth north of $100-million within the next year.

In a research update to clients this morning, Ofir maintained his “Buy” rating on Intertain, but raised his one-year target from $10.00 to $12.50, implying a return of 24.6% at the time of publication.

The analyst says the reason for the raise is that he is now factoring said acquisition into his forecast in mid-fiscal year 2015, which raises his estimates for that year and for 2016.

In fiscal 2015, Ofir now expects Intertain will post adjusted adjusted EBITDA of $29-million on revenue of $66-million, up from $23-million and $51.6-million, respectively. The following year, he expects the company will post adjusted EBITDA of $44-million on revenue of $95-million.

Ofir says Intertain’s M&A strategy has it focusing on the bingo vertical. He thinks this is an “appropriate strategy” as it will allow the company to leverage its brands and increase the average spend of each player. He notes that management believes jackpot liquidity which will make its sites more competitive overall.

In June, Intertain reached an agreement to acquire Mandalay Media for approximately $82.4 million. Mandalay owned some of the U.K’s most popular bingo websites, including Costa Bingo, Sing Bingo, City Bingo, Fancy Bingo and Rio Bingo. In fiscal 2013, the company’s bingo business generated £16.1 million in revenue.

Ofir thinks an acquisition anywhere in the $50-200 million range will create “significant” value. He thinks there would be $0.15-$0.45 in EPS accretion, which he says translates into $1.50 to $6.00 in per share value.