Amaya is "grossly undervalued", says Cantor Fitzgerald Canada

News today from Amaya (Amaya Stock Quote, Chart, News: TSX:AYA) is a precursor to additional successful results in the company’s legal battles, says Cantor Fitzgerald Canada analyst Ralph Garcea, who says he considers the stock “grossly undervalued” at present levels.

This morning, Amaya announced it has paid €5.9 million as a final settlement with Italian tax authorities to resolve a previously disclosed tax dispute in which Italian authorities estimated that approximately €85 million were owed by a subsidiary of Amaya related to its Italian operations under the PokerStars brand for the 2009 through 2014 tax years. The entire settlement, said management, will be paid from an escrow fund established under the merger agreement governing Amaya’s acquisition of the PokerStars business.

Garcea thinks today’s release is a sort of blueprint for how the rest of Amaya’s legal issues will turn out.

“We feel that AYA’s other legal battles should resolve themselves in a similar logical fashion over time; and that the stock is grossly undervalued at these levels,” says the analyst, who thinks the upside on the company is considerable. “With a growing PokerStars base, and cross-sell leverage from Casino and Sportsbook, we could see AYA exit 2017 with a run-rate of ~$2.0B and EBITDA of ~$800M+,” he adds.

In late December, shares of Amaya hit a 52-week low after the company was hit with a $870-million verdict from a Kentucky court over losses on its PokerStars website. Amaya took a dim view of the action.

“This is a frivolous and egregious misuse of an antiquated state statute to enrich the contingent-fee plaintiff’s attorneys hired by the commonwealth and not the people of Kentucky,” said Marlon Goldstein, executive vice-president, corporate development and general counsel, of Amaya. “Given that PokerStars only generated gross revenues of approximately $18-million (U.S.) from Kentucky customers during the five years at issue, a damages award in excess of $800-million (U.S.) is notable only for its absurdity.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year target price of $45.00 on Amaya, implying a return of 181 per cent at the time of publication.

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