Shares in the Toronto-based online gaming company behind the InterCasino and InterPoker brands have spiked more than 200 per cent since going public at $4 in February.KingJC/Getty Images/iStockphoto
A bet on growth in the online gambling market has made investors in Intertain Group Ltd. a lot of money in recent months, and analysts see more gains ahead driven by the company's aggressive expansion plan.
Shares in the Toronto-based company behind the InterCasino and InterPoker online gaming brands have spiked more than 200 per cent since going public at $4 in February.
Intertain offers online games such as blackjack, roulette and Texas hold'em, largely to players in the active British market. The high-margin business is a draw for investors who appreciate the maturing online gaming market and believe in the company's growth-by-acquisition strategy. That's even though the stock's valuation is at the higher end of its peer group.
"You're paying the higher end of the range, but you're gaining the upside of additional M&A [mergers and acquisitions]," said Clarus Securities analyst Eyal Ofir, who has a $14.30 price target on the stock – a target that doesn't reflect the company's most recent acquisition.
All six analysts who cover the company call it a "buy," and the consensus price target over the next year is $14.34, according to S&P Capital IQ. The stock is trading around $13.80.
"If you're willing to invest in publicly traded casino operators, you should be willing to invest in an online casino operator like Intertain, which only operates in regulated jurisdictions," Mr. Ofir said.
Intertain went public after buying the InterCasino assets from technology company Amaya Gaming Group Inc.
In June, Intertain began its expansion with the purchase of British online bingo website company Mandalay Media, which was followed this month by its agreement to buy online casino operator Vera & John, giving it access to more players in Nordic countries.
"We wanted to diversity our revenue away from the U.K.," Intertain's chief executive officer John FitzGerald said in an interview.
The company's goal is to make two acquisitions each year to expand the business, with a focus on games catering to the female demographic, such as bingo and slots. Mr. FitzGerald said he believes that strategy will set the company apart from competitors focused more on sports and other games geared toward men.
He said Intertain plans to expand across Asia, Mexico, Central and South America, but will steer clear of Canada for now, until Canadian online gambling laws are clarified, and the United States, until online gambling is legalized in more states. (Internet gambling was banned in the United States. in 2006, but some states, such as Nevada, are slowly starting to regulate it.)
"Given Intertain's international presence, regulation is probably one of the most significant risks facing the company," National Bank Financial analyst Adam Shine said in a recent note initiating coverage on the company.
Still, Mr. Shine has an "outperform" on Intertain and $15 target, saying it's well positioned to capitalize on the industry's global growth.
That may include more acquisitions in Britain following a consumption tax that analysts say will eat into companies' profits, forcing smaller players out of the market, leaving Intertain with an opportunity to buy companies at cheaper valuations.
"We believe that material upside exists as the company continues to successfully execute its M&A strategy and grow its expanding scope of operations," Mr. Shine said.
Mackie Research analyst Nikhil Thadani has a $15.75 target on the stock, saying in a note he believes the stock's "revenue guarantee, strong organic prospects, able management team, very rapid M&A execution and more M&A upside warrants a premium multiple."
Bruce Campbell, president and portfolio manager at StoneCastle Investment Management, said his firm bought some stock a few months ago and is happy with the gains, but believes the stock is fully valued at current levels.
"We're sitting in a profit position and are happy to hold right now," he said.