In a research report to clients last Thursday, Thadani initiated coverage of Intertain Group with a “Buy” rating and one-year target of $14.00, implying a return of 23% at the time of publication.
Thadani says that while there are many potential upside catalysts for Intertain, its downside is protected in part by its close relationship with Amaya Gaming, from which Intertain was spun in February of this year. He notes that Amaya, which provides the gaming platform for the company’s InterCasino and InterPoker sites, has agreed to pay the shortfall between Intertain Group’s organic revenue and (US) $19-million annually until the first quarter of 2016. The relationship between the pair is deepened by the fact that Amaya owns 9% of Intertain’s common shares, more than $4-million of its subordinated convertible debentures, more than $350-million in common share purchase warrants and hold a $10-million vendor take-back loan to Intertain.
Thadani thinks Intertain’s mobile channel could expand by a third in the U.K, noting the increased marketing dollars spent by its recent acquisition of Mandalay in the months before the pickup. He also believes the company could expand into new geographies as various jurisdictions look to loosen regulations on online gaming in order to generate tax revenue.
The Mackie analyst says his $14.00 target on Intertain derives from applying a 11.9x EV/EBITDA on his 2016 estimates, one he notes is near the high end for established online gaming providers, but one he feels the company deserves.
Shares of Intertain Group closed Friday up 2.9% to $11.58.
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Nick could you double check the value of common share purchase warrants. The $350 million seems high given the $230 million market cap of Intertain. Maybes it's $350 thousand.