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.



Amaya Gaming Group Inc. Spec Bet

Hong Kong Confidential
Hong Kong Confidential (Photo credit: Wikipedia)

AYA : TSX-V : C$5.32
Target: C$8.50

Amaya Gaming Group Inc. designs, develops and distributes a host of technology-based solutions targeted at the regulated gaming industry. Amaya’s solutions cater to a wide range of industry participants, including land based and online casino operators, hotel and hospitality operators and government regulators.

Investment recommendation

We are initiating coverage of Amaya Gaming with a SPECULATIVE BUY rating and a C$8.50 target price. We believe that Amaya is well positioned to benefit from strength in the gaming technology market and more specifically, the physical/online convergence. Attitudes towards gambling are liberalizing as debt-laden governments are looking for new sources of tax revenue. With the US becoming more open to regulated online gambling, a large new market may open. While this is an attractive source of upside, we believe that Amaya is on the cusp of a transformation after a flurry of acquisitions supporting strong growth in 2013 and 2014 whether the US opens or not.
Investment highlights
 Amaya Gaming is a developer of innovative technology and content for the regulated online, interactive and land-based gaming industry.
Recent acquisitions transform Amaya into a global player with a platform to offer content across multiple gaming mediums including land-based, online and mobile. Amaya’s position in the market is protected from new entrants by onerous government regulation.
 The market for gaming services is very large with gaming gross yield expected to grow to over $400 billion in 2013 with online growing to over $37 billion. We believe that the gaming vendor space is over $27 billion with annual growth closer to 5%. For a firm the size of Amaya, we believe there is ample room for growth. In 2014, after the model has  stabilized, we expect 25% revenue growth and 43% EBITDA growth.
 Amaya’s technology products attract a share of gambling revenue which is scalable, high margin and recurring in nature. We believe that
EBITDA margins of ~35% are within reach as the model matures.


Given strong product positioning with an end-to-end product suite more common to companies much larger than Amaya and our strong growth
expectations, we believe Amaya shares warrant a premium valuation. At current levels, Amaya trades at 6.6x EV/C2014E EBITDA versus gaming
technology vendors at 8.4x (range is 6.0x to12.3x). Our C$8.50 share price is based upon 10x C2014E EV/EBITDA and 18x C2014E cash adjusted P/E supported by comparables, recent transaction pricing and our DCF analysis.

Zynga : Web Gamble Paying Off

Image representing Zynga as depicted in CrunchBase
Image via CrunchBase

Glu Mobile GLUU : NASDAQ : US$2.32

Nevada has become the first U.S. state to legalize internet gambling, with Governor Brian Sandoval signing a bill that would also allow Nevada to partner up with other states. Sandoval said, “This is an historic day for the great state of Nevada. Today I sign into law the framework that will usher in the next frontier of gaming in Nevada.”

Nevada already has 20 pending licensing applications from Web site operators and software vendors. The U.S. has generally opposed online gambling, with authorities going after any site providing Internet poker or other games.

The news sent shares of social gaming company’s Zynga and Glu Mobile into the green on Friday. Zynga filed for a preliminary finding of suitability with the Nevada Gaming Control Board in December and signed a deal with Bwin.Party Digital Entertainment, an online gambling company, in October as it looks to expand beyond its Farmville roots into the world of gambling.

Zynga Game On !

Image representing Zynga as depicted in CrunchBase
Image via CrunchBase

October 26

Zynga (ZNGA : NASDAQ : US$2.39)

Zynga reported its official Q3/12 results following the close on Wednesday, after having pre-announced lowered expectations two weeks ago. Bookings shrank 16% y/y to $256 million, compared to Canaccord  estimate of $259 million and consensus of $291 million.

Adjusted EBITDA was $16.2 million compared to the  forecast of $29.3 million and consensus of $20.5 million. Management attributed the decline in bookings and profitability to weaker than expected performance from its portfolio of Facebook (FB)   games, its inability to launch new games to replace declining ones, and faster than expected adoption of mobile games by users.

The company also announced a cost reduction program, which will see a 5% reduction in full-time work-force with the potential to deliver up to $80 million in annualized cost savings. As of part of the cost reduction program, the company will phase out 13 underperforming games.

The company has signed an exclusive partnership with to launch games in the U.K. in its first step into real-money gaming, which could potentially become a very lucrative business for the company.



Amaya Gaming Group Inc – Betting On A Double Target $6

Hong Kong Confidential
Hong Kong Confidential (Photo credit: Wikipedia)

Amaya Gaming Group Inc. 
AYA : TSX-V : C$3.58  Speculative Buy , Target C$6.00 

July 25
Updating our 2012 view, unveiling 2013 estimates, raising target to C$6.00  from C$5.50, maintaining SPEC Buy
Investment recommendation

Amaya recently closed a private placement  for gross proceeds of ~$107 million. In our opinion, this financing strengthens the
company’s balance sheet to advance additional program launches in multiple  countries, better positions it for future online gaming opportunities as new  markets open up, and allows it to make additional accretive acquisitions to  enhance the company’s offerings. We anticipate significant top-line growth in the  back half of the year.

there are additional catalysts for Amaya, as it has been bidding on multiple opportunities. Combined, we believe that these
opportunities position the stock for upside even in a choppy market .
Investment highlights
• Updating our 2012 estimates to reflect FQ1 results and financing: revenue declines to $80.7 million (from $84.5 million), while adjusted EPS drops to $0.17 from $0.31.
• Unveiling 2013 estimates of revenues of $126.9 million (up 57% Y/Y) and adjusted EPS doubling to $0.34.

Our C$6.00 target price is based on 22x our FTM adjusted EPS, which is in line  with the higher end of the comparable range