Intertain Group is "grossly undervalued", says Dundee

The most recent actions from Intertain Group (Intertain Group Stock Quote, Chart, News: TSX:IT) confirm that the company is on the right track and its stock is cheap, says Dundee Capital Markets analyst Eyal Ofir.

On February 8, Intertain responded to claims made on December 17 by hedge fund manager Ben Axler of Spruce Point Capital Management who called Intertain “…another questionable, highly levered Canadian roll-up focused on online gaming, but fraught with numerous accounting, financial disclosure, and management/governance issues” and claimed the company had “questionable” connections to stock promoters. Axler also said that the company’s use of three auditors was “a red flag”.

Intertain Group arranged a committee that consisted of law firms Voorheis & Co. LLP and Stockwoods LLP, and accounting firm Deloitte LLP to conduct what the company described a “thorough” review. Intertain said the findings supported the strength of its underlying business.

This morning, Intertain Group reported that it had completed its independent committee review and reiterated the conclusions made on February 8, asserting that the conclusions of the short-seller report were “wrong in every material respect”. The company also announced that it would look for a new CFO and CEO to replace Keith Laslop and John Kennedy FitzGerald, respectively.

“The committee has finished its work and reported to the board of directors,” said Stan Dunford, chairman of the board of Intertain. “We want to stress that our work with our independent advisers has exposed the gross inaccuracies in the central elements of the Spruce report relating to the quality and performance of Intertain’s underlying businesses.”

Ofir says today’s news closes the book on the would-be scandal and puts his gaze solidly back on a company he believes is extremely undervalued.

“We believe that the results of the review provide further validation that the short report was completely self-serving and erroneous, but more importantly, the changes brought forward with this release should appease investor concerns on other matters such as the MIP related to the earn-out, as well as a change at both the management and Board levels,” he said. “We believe that the stock is grossly undervalued and that this release should provide investors with many reasons to revisit the story. Reiterate our BUY!”

In a research update to clients today, Ofir reiterated his “Buy” rating and one-year target price of $21.00 on Intertain Group.