Nov.21.16 | About: Amaya Inc. (AYA)
Simeon Rusanov
Long/short equity

Summary

Conservative fundamental valuation suggest fair value of roughly $14 a share.

Current market value implies 25% chance of deal being closed.

Attractive developments on the global online poker stage coupled with favorable trends in the casino and sportsbook segments support the thesis.

Following the discussion we had regarding Amaya's (NASDAQ:AYA) special situation and theoretical fair value/floor for company's common shares, I am keen to justify the appealing risk/reward ratio by an extensive absolute valuation model. I will also attach the Excel file so you can plug your assumptions and arrive at a value yourself.

First, it is worth mentioning that Amaya changed its reporting currency from CAD to USD as of the beginning of this financial year, so necessary adjustments should be made. Moreover, Amaya reports interest and capitalized M&A expenses as part of the operating segment. Also, the company uses IFRS as opposite to US GAAP, implying lack of consistency when compared to other domestic companies.

Revenues:

Despite being an absolute behemoth on the online poker stage controlling roughly 70% of the traffic, there are a few concerns that might make us doubt the bright future of the segment. First and foremost, the game is going out of fashion. A simple Google Trends check is painting the terrifying picture of consistent decline for all "key words" you can think of. What is happening? Until recently, the game was widely promoted as a great way to benefit from your above average math and psychological skills in a get-rich-quick fashion. On April 15, 2011, however, everything changed. The U.S. Department of Justice unsealed a 52-page indictment against top executives of PokerStars and Full Tilt Poker, barring the companies from serving U.S. players. Needless to say, billions of dollars were lost that day. Even now, the thesis of most of the bulls starts with "What if they legalize the online poker in the US?". Indeed, there is moderate progress in this direction, but the US market is hardly the elephant in the room.

http://seekingalpha.com/article/4025064-amaya-special-situation




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