Buy Intertain Group ahead of U.K. listing, says Mackie

Unrealized value in Intertain Group (Intertain Group Stock Quote, Chart, News: TSX:IT) could be shaken out by the coming’s forthcoming U.K. listing, says Mackie Research Capital analyst Nikhil Thadani.

In a research update to clients today, Thadani maintaied his “Buy” rating and one-year price target of $20.00 on Intertain Group, implying a return of 90 per cent at the time of publication. The analyst thinks there is a divergence between the valuation of Intertain and its international peers that could be remedied by the London Stock Exchange listing.

“While the UK listing could lead to some churn amongst the company’s existing Canadian investor base, we expect the stock’s valuation gap with European peers to narrow over time as a result of the UK listing,” says Thadani. “IT trades below 8x 2017 EV/EBITDA (inc. earn-outs) vs. peers at ~11x. Every 1x on IT’s EBITDA multiple implies a ~$3/sh stock price value, due to a relatively low share count. Short interest of ~3.2 mln shares as of Aug 15th (Figure 1) could amplify any potential upward move, especially if the mechanics of the migration are complex.”

On August 11, Intertain reported its Q2, 2016 results. The company lost $27.49-million on revenue of $118.8-million, a topline that was 22 per cent higher than the same period last year.

“Intertain had a strong second quarter, with all business segments improving on their results from the same period last year,” said CEO Andrew McIver. “The company continues to realize significant gains from organic growth, with revenues up 22 per cent from the second quarter of 2015. We’ve also made a substantial investment in marketing in order to drive growth over future quarters. Increasing shareholder value remains my key objective, and all efforts going forward will be focused on positioning the company for long-term growth and success.”

Thadani expects Intertain will generate EBITDA of $171.5-million on revenue of $489.5-million in fiscal 2016, numbers he expects will climb to EBITDA of $185.4-million on revenue of $510-million the following year.

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