NYX Gaming (TSX:NYX) is set to reap long term benefit from its acquisition of Amaya’s Chartwell/CryptoLogic assets, says Cantor Fitzgerald Canada analyst Ralph Garcea.
Last Thursday, NYX reported its fourth quarter and fiscal 2014 results. In its Q4, the company generated EBITDA of $600,000 on revenue of $8.6-million, numbers that bested the street’s and Garcea’s expectations on the topline, but fell short on the bottom.
“It is with great pleasure that we release our first quarterly financial results as a public company. Our expertise in the gaming industry combined with our proven acquisition and integration strategy positions us well for future growth,” said CEO Matt Davey. “We are pleased with our success to date and remain committed to driving shareholder value. Our 46-per-cent increase in revenue and 49-per-cent increase in gross profit demonstrates the strength and scalability of our business. We continue to benefit from recurring revenue received from royalties and licensing fees, which represents over 80 per cent of our total revenue,” said Arthur Hamilton, chief financial officer. “Our cash flow generation remains solid, and we look forward to continuing building on our strong balance sheet and maintaining financial flexibility.”
Garcea thinks NYX’s short term margins will be impacted following the $150-million acquisition of assets from Amaya Gaming, but will rebound in 2016. The analyst believes the pickup is a defining moment for the company.
“NYX is acquiring some of the world’s leading gaming content (~300+ games), a real-money gaming platform, and 40+ customers (up from 130+ customers currently) that includes some of the world’s leading online casino providers,” says Garcea. “For 2014, the B2B Business generated ~$17.4M in revenue and EBITDA of ~($7.6M). Management expects substantial cost synergies of ~$7.0-9.0M (50%+ to be realized in the first 12 months). Note that at their peaks we estimate the B2B Business was doing ~$25M in revenue and Ongame was doing $31.5M – which would almost triple NYX’s current business.”
In a research update to clients today, Garcea maintained his “Buy” rating on NYX Gaming, but raised his one year target on the stock from $7.00 to $8.00, implying a return of 72% at the time of publication.