Intertain Group (TSX:IT) still has big upside, says Mackie Research Capital analyst Nikhil Thadani.
This morning, Intertain announced it had closed its previously announced subscription receipts offering. The company sold a total of 32.2-million subscription receipts at $15 each for aggregate gross proceeds of $483-million. The proceeds of the offering will be used to finance, in part, the previously announced acquisition of the wholly owned subsidiary of Gamesys Ltd.
Because he is now modeling revenue from the Gamesys acquisition into his forecast, Thadani today changed his price target on Intertain Group. While he maintains his “Buy” rating on the stock, the analyst has raised his one year price target from $17.00 to $24.00, implying a return of 49% at the time of publication.
Thadani explained the math behind his new price target.
“Intertain stock provides upside as market digests the company’s game changing acquisition,” he said. “We include the ~$170 mln Gamesys earn out in our EV calculation. Intertain trades at 9x 2016 EV/EBITDA on this basis, while larger providers trade at an average ~12x 2016 EV/EBITDA, as per Figure 4. Most online gaming providers trade in the ~8-14x 2016 EV/EBITDA range. Intertain trades at discount on a 2016 EV/EBITDA basis to all but one large operator. Our new $24/sh target price implies ~12x 2016 EV/EBITDA on our revised estimates.”
Earlier this month, Intertain announced it would acquire three gaming brands, including U.K. online bingo leader Jackpotjoy, on-line slot site Starspins, and Spanish online bingo leader Botemania from Gamesys for 425.8 million British pounds sterling (approximately $809-million Canadian dollars). The company says it believes the transaction will instantly turn Intertain into the largest provider of online, bingo-led gaming.