Amaya still has significant upside, says Dundee

Amaya’s (Amaya Stock Quote, Chart, News: TSX:AYA) first quarter results provided more evidence that the company still has lots of upside, says Dundee Capital Markets analyst Eyal Ofir.

Yesterday, Amaya reported its Q1, 2015 results. The company earned $12.96-million on revenue of $340-million.

“We saw continued strength in our core consumer on-line gaming business in the first quarter with gross deposits at PokerStars increasing approximately 9 per cent on a domestic currency basis and PokerStars estimating an increase in its share of the global on-line poker market,” said CEO David Baazov. “We believe that this healthy engagement helped counter new sales taxes and gaming duties in certain major European jurisdictions, as well as a significant decrease in the purchasing power of our consumer base stemming from a sharp decline in the value of their local currencies versus the U.S. dollar, which is the predominant currency of gameplay.

Ofir says Amaya’s revenue was in-line with his expectations, but the company’s bottom line was better than he expected. The analyst says that long term, he thinks Amaya’s casino business, which only contributed marginally to this quarter, could generate $520-700 million in annual revenue from the current player base.

“The quarter revealed that the PokerStars business remains healthy and is growing at high single digits at constant currency. In the face of FX and VAT headwinds, casino remains a major tailwind for Amaya, management noted that in the last 6 weeks of Q1 casino revenue run rate increased by 75%, and the current run rate is 75% above that. The higher than expected contribution and growth rates helped the company beat on the bottom line,” said Ofir.

In a research update to clients today, Ofir maintained his “Buy” rating and one year target price of $52.00 on Amaya, implying a return of 59% at the time of publication.