The Stars Group has a 91 per cent upside, Echelon Wealth says

Global gaming company The Stars Group (The Stars Group Stock Quote, Chart TSX:TSGI) posted solid quarterly results but a trim to his 2019 estimates has caused analyst Gianluca Tucci of Echelon Wealth Partners to drop his target price for TSGI.

The Stars Group rose more than 13 per cent in trading on Wednesday as investors reacted to the company’s fourth quarter and full year results ended December 31, 2018. TSGI reported Q4 revenue of $653 million, up 81.2 per cent year-over-year and Adj. EBITDA of $239 million, a 62.9 per cent year-over-year increase. (All figures in US dollars unless where noted otherwise.)

“2018 was a landmark year for the company,” CEO Rafi Ashkenazi said. “We completed the acquisitions of Sky Betting & Gaming in the U.K. and BetEasy in Australia, extended our licensed footprint to 21 jurisdictions around the world and began laying the foundations to grow our presence in the US.”

Tucci notes that the Q4 results were lower than both his and the Street’s estimates for the top line, where Tucci had forecast $669 million in revenue and the consensus was $657 million, as well as on EBITDA, where Tucci had forecast $225 million and the consensus was $229 million.

Tucci says that while he’s trimming his estimates, TSGI is still expected to grow shareholder value.

“Stars Group via its recent acquisitions is a global powerhouse, with strong positions in all of the largest regulated global gaming markets,” says Tucci in a client update on Wednesday. “The top six regulated markets represent roughly two-thirds of proforma revenues and are expected to grow at a six to 17 per cent CAGR through 2021. We expect TSGI to leverage its scale and competitive advantages to continue growing market share and outpace market growth rates over the long term.”

Tucci notes that while the gaming sector was hit hard since the highs of last summer (with TSGI getting particularly beat up), The Stars Group has a history of outperforming versus its peer group, a trend which the analyst expects to return to normalization. \

“Follow the leader – that being Stars Group,” he says.

Tucci is calling for 2019 revenue of $2.67-billion (was $2.77-billion) and Adjusted EBITDA of $979.0 million (was $1.01 billion).

The analyst is maintaining his “Buy” rating with the reduced target of C$40.00 (was C$45.00), representing a projected 12-month return of 91 per cent at the time of publication.