Intertain Group is headed for big things, says Cantor Fitzgerald Canada

Cantor Fitzgerald Canada analyst Ralph Grcea says Intertain Group’s (Intertain Group Stock Quote, Chart, News: TSX:IT) third quarter outperformed his expectations, and he sees big things for the company over the next two years.

Yesterday, Intertain Group reported its Q3, 2015 results. The company lost $17.49-million on revenue of $119.5-million.

“Third quarter was the first full quarter of operations for Intertain with all four of our business segments working together to demonstrate the cash flow power of our combined company,” said CEO John Kennedy FitzGerald. “We generated $41.5-million of cash from operations and used our cash to pay down debt, repurchase our stock at accretive prices and fund the ultimate earn-out on the Jackpotjoy business. We continue to see substantial organic growth as we leverage our corporate- and operating-level management teams’ expertise to optimize the performance of our business.”

Garcea notes that Intertain’s third quarter results bested his expectations of Adjusted EBITDA of $36.8-million (the company posted $43.7-million) and revenue of $100.3-million. The analyst says he sees Intertain driving its growth to more than $200-million in EBITDA and $500-million in revenue over the next two years.

“With the Jackpotjoy and Mandalay Media acquisitions, Intertain has become the largest provider of online, bingo-led gaming – with most of its revenue derived from a female demographic in regulated markets (and the 8th largest online gaming operator in general),” says Garcea. “Intertain has one of the highest % of revenue from regulated markets (80%) as compared to its peer group (25% to 80%). We like the “stickiness” of bingo, and look for EBITDA margins to expand to the 40%-45% range as the company integrates the acquired platforms. Longer term we are looking for revenue growth in the 10%-15% range.”

In a research update to clients today, Garcea are maintained his “Buy” rating and one-year target price of $28.00 on Intertain Group, implying a return of 99% at the time of publication.

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