A new deal with FOX Sports is a win for The Stars Group (The Stars Group Stock Quote, Chart TSX:TSGI), says Echelon Wealth Partners analyst Gianluca Tucci, who in a client update on Thursday reiterated his “Buy” rating and C$37.50 target for TGSI.
The announced partnership between TGSI and FOX Sports, a unit of Fox Corporation, will see the launch of online betting platform FOX Bet, which will give TGSI an exclusive license to use FOX Sports trademarks, with the expected launch of FOX Bet coming in the fall of 2019 in time for the NFL season. The deal will see Fox Corp. acquiring 14.4 million newly issued common shares of TSGI, representing 4.99 per cent of the company’s issued and outstanding common shares, at a price of $16.440 per share, the prevailing market price leading up to the start of exclusive negotiations.
Pointing to preliminary estimates that see the US sports betting market as very lucrative, Tucci says,
“We believe this announcement represents a watershed moment with a significant partner whom TSGI can leverage as a very low-cost customer acquisition channel as it carefully places a strategic and significant wager on the US market. We believe this is a significant win for both parties as advertising, television, digital content, and wagering all drive user experience and raise the level of engagement. This type of deal furthers our belief that TSGI is rightfully deserving of a premium multiple relative to peers, which our price target implies.”
Tucci is calling for fiscal 2019 revenue and Adjusted EBITDA of $2,597.1 million and $947.8 million, respectively. (All figures in US dollars unless noted otherwise.) His C$37.50 target represents multiple of fiscal 2019 of 4.9x revenue, 13.5x Adjusted EBITDA and 15.4x P/E, which compares to its Online Gaming Operator comparables average of 2.4x, 9.6x and 15.6x, respectively.
Tucci’s target represented a projected return of 59 per cent at the time of publication.