Amaya Gaming Group Inc.

Amaya Gaming Group Inc.

AYA : TSX : C$6.30

Target: C$8.7

Technology — Gaming Technology
Investment recommendation
Amaya reported Q4 results below consensus on weaker than expected revenue
which flowed to adj. EBITDA and adj. EPS. While Q4/13 results are
disappointing, and in our view, the lack of F14 guidance sets up a volatile Q1,
we remain positive on 2014 opportunities, including Diamond Game integration
and the recent $57 million, five-year deal with Maryland, expansion/share gain
of Cadillac Jack in Class II and new Class III markets, and upside from nascent
US online gaming. We are maintaining our BUY rating but lowering our target
price to C$8.75 (from C$10.00) based on 11x C2014E EV/EBITDA (down from
12x) to reflect peer multiple decline, near-term risks, and volatility.
Investment highlights
 Q4/13 missed expectations – Amaya reported revenue of $39.0 million (up
5% YoY but down 3% QoQ), missing our estimate of $46.3 million and
consensus of $46.1 million. Software licensing and sales revenues
rebounded in the quarter, partially offsetting declines in finance lease and
hosted revenues. Adjusted EBITDA of $15.4 million was below our $19.4
million estimate, and in line with consensus. Adj. EPS was $0.06, missing
our and the consensus estimates of $0.09.
 Growth still robust – Although quarterly results were somewhat muddled, it is difficult to argue with Amaya’s growth profile. We have lowered our outlook, but we highlight potential YoY revenue growth of +31% and 23% in  2014E and 2015E, respectively, with similarly robust EBITDA growth  forecast at +41% and +35%. Although driven in part by acquisition, this
remains impressive relative to peers. We acknowledge that until Q1 and
guidance, this outlook will be high risk.
Amaya currently trades at 8.2x C2014E EV/EBITDA, versus peers at 9.1x. Given
Amaya’s strong growth, margin profile, and product strength, we believe it
deserves to trade at a premium and could be viewed as an attractive acquisition
in a consolidating industry. Our target is based on 11x C2014E EV/EBITDA
supported by our DCF analysis.




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