Buy Intertain Group on weakness, says Mackie analyst Thadani

Investors should take advantage of recent weakness in shares of Intertain Group (Intertain Group Stock Quote, Chart, News: TSX:IT), says Mackie Research Capital analyst Nikhil Thadani.

In a research update to clients yesterday, Thadani maintained his “Buy” rating and one year target of $24.00 on Intertain, implying a return of 61% at the time of publication.

Thadani notes that, coming on the heels of good fourth quarter results, short interest in Intertain has increased considerably. The short position on the company was up 60% in February to more than two million shares. The analyst thinks this may be skepticism that the Gamesys asset acquisition will not be completed because of the debt part of the financing won’t be closed.

But Thadani says he does “not expect significant risk” from that consideration and predicts that the acquisition will close in the first week of April. He says investors should remain focused on earnings accretion from Intertain’s acquisition strategy.

“While recent headline risk could explain some market nervousness, we believe precisely this sentiment provides a compelling, near term opportunity to benefit from IT/Gamesys earnings accretion, which is not impacted by recent Amaya related headlines. Recall, IT stock was trading higher than current levels when large M&A was speculated last November. We view this acquisition to have less integration risk than typical enterprise software or technology hardware acquisitions,” said Thadani.

Thadani says he thinks the short interest in Intertain Group could actually create a short squeeze that would send the stock “rapidly higher” if and when the price reaches $16.

At press time, shares of Intertain Group were down 2.4% to $14.87.

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