Intertain Group has 219% upside, says Cantor Fitzgerald Canada

A third quarter that saw EBITDA margins come in much better than he expected has Cantor Fitzgerald Canada analyst Ralph Garcea feeling bullish about Intertain Group (Intertain Group Stock Quote, Chart, News: TSX:IT).

On Monday, Intertain Group reported its Q3, 2016 results. The company lost $31.8-million on gaming revenue of $113.6-million.

“Intertain’s strong results demonstrate the ongoing popularity of our brands, and our continued success in retaining and attracting customers,” said CEO Andrew McIver. “Higher revenue is driven by a stronger performance in all segments in their functional currencies, contributing to an increase in gaming revenue of 10 per cent on a constant-currency basis. Our third quarter financial results point to the continued solid performance of our assets. We remain very focused on our efforts to implement the U.K.-centred strategic initiatives and are working hard together with our advisers to complete the listing of Jackpotjoy PLC’s ordinary shares on the London Stock Exchange. Discussions with the U.K. listing authority in this regard are continuing and we will update shareholders as soon as possible on our progress.”

Garcea notes that Intertain’s gaming revenue topped both his expectation of $111.7-million and the street consensus of $112.7-million. The company Adjusted EPS of $0.49, he points out, beat his expectation of $0.32 and the street consensus of $0.37. The analyst says investors should focus the company’s fundamentals, not the noise around it or the space in general.

“With five full quarters of fully integrated operations now behind us, we see IT driving to $500M+ in revs and $200M+ in EBITDA,” says Garcea. “We believe the market is not paying attention to the power of the operating leverage across the platform and remain confident in Intertain’s ability to deliver.”

In a research update to clients today, Garcea maintained his “Buy” rating and one-year price target of $28.00 on Intertain Group, implying a return of 219 per cent at the time of publication.

Garcea thinks Intertain Group will generate Adjusted EBITDA of $185.8-million on revenue of $478.4-million in fiscal 2016. He expects these numbers will improve to EBITDA of $198.8-million on a topline of $505.7-million the following year.

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