Don’t bet against Amaya’s David Baazov, says Cantor Fitzgerald

Cantor Fitzgerald Canada analyst Ralph Garcea says Amaya (TSX:AYA) CEO David Baazov’s non-binding indication to take the company private at $21.00 per share is a “small blind” offering that puts it into play.

Yesterday, Amaya announced it had received a non-binding indication from David Baazov, who is chairman and CEO. Baazov intends to make an all-cash proposal to acquire Amaya and take it private for $21.00 a share, a premium of about 40 per cent over Friday’s closing share price. The company noted that no formal bid has yet been made and said it had already established a special committee of independent directors to review any proposal that might be forthcoming.

On Monday, shares of Amaya spiked more than 20 per cent to close at $18.00.

Garcea says this could just be the beginning for Amaya buyout offers, and that going private could be a good move for the company in as much as it would block out the noise around issues such as state lawsuits, the scandal around Daily Fantasy Sports, and the delayed rollout of the U.S. market. The analyst says he sees plenty of room for a higher offer from private equity or strategic buyers like Paddy Betfair, William Hill, IGT/GTECH, Aristocrat and others.

Garcea says those who speculate that Baazov’s move is just a response to pressure on Amaya’s stock might end up being surprised by the final result.

“Some are saying that Mr. Baazov’s move was in response to the increased short position,” says Garcea. “However, we believe it’s just another pivot in strategy (the fourth) that would best be served as a private company. All the noise around the US market not rolling out as planned (NJ not as big as expected, California delayed, state lawsuits, daily fantasy sports (DFS) in the attorney generals’ crosshairs, etc) is not relevant in the near- to mid-term. Really, who needs the aggravation! The playbook is straightforward: Go private, acquire partypoker, acquire some sportsbook assets to accelerate BetStars’ growth, settle all claims and lawsuits inherited from Rational Group, wait for the US market to evolve, spin-out NewCo in 2-3 years time with $2B+ in revs and $800M+ in EBITDA – at a much higher valuation!”

Garcea says it is important to note that Amaya’s core business is healthy. He points out that registered PokerStars users increased by 1.9-million quarter-over-quarter to $97-million in Q3, 2015. He expects this will soon grow to 100-million. The analyst says he expects that by 2020, poker will account for 69 per cent of the company’s revenue, with casino at 13 per cent and sportsbook at 18 per cent. He says that daily fantasy sports could bring “meaningful” business in the next few year, but notes that he is not modeling any revenue from this segment at this time.

In June of 2014, Amaya (then known as Amaya Gaming) announced one of the most ambitious acquisitions in the recent history of the Canadian markets. The company said it would acquire Oldford Group Ltd., the parent of Rational Group Ltd., the world’s largest poker business and owner and operator of the PokerStars and Full Tilt Poker for a staggering $4.9-billion. The acquisition increased Amaya’s revenue eightfold.

In a research update to clients today, Garcea maintained his “Buy” rating and one-year target price of (C)$45.00 on Amaya, implying a return of 150 per cent at the time of publication.

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