M Partners analyst Steven Salz thinks there is an opportunity for investors to capitalize on what he thinks is a misunderstood stock in NYX Gaming (TSX:NYX).
In a research report to clients today, Salz initiated coverage of NYX Gaming with a “Buy” rating and a one-year price target of $2.50, implying a return of 107.4 per cent at the time of publication.
The analyst thinks a few specific issues are leaving NYX undervalued when compared to its peers, including a lack of understanding about its (C) $505-million acquisition of U.K.-based sportbook and digital gaming provider OpenBet that closed last May.
“At current levels we believe NYX is oversold due to negative industry sentiment and the misunderstood acquisition of OpenBet, mispricing the equity ahead of a transition year,” he says. “NYX has been a victim of an exaggerated correlation to struggling industry players focused on poker (~3% of NYX revenue), further amplified by Amaya Inc.’s ex-CEO being accused of insider trading. NYX’s recent acquisition of OpenBet filled a gap in its portfolio by adding a leading sportsbook segment, which has only had one consolidated quarter to realize expected synergies.”
“Legal online gaming is still in its infancy, accounting for under five percent of total global gaming revenue, he says. “We believe recent positive regulatory momentum will provide a meaningful tailwind.”
Salz thinks NYX will post Adjusted EBITDA of $48-million on revenue of $164-million in fiscal 2016. He expects these numbers will improve to EBITDA of $79-million on a topline of $232-million the following year.