TSX:IGG - Post Discussion
Post by
sculpin2 on Nov 11, 2016 9:48am
Cantor on IGG
Innova Gaming Group Inc. (IGG/TSX; $1.50) BUY: Target $6.00
Q3/16 Results In-Line
Ralph Garcea (416) 849-5004
EVENT
IGG announced Q3/16 results that were in line with expectations.
BOTTOM LINE
Positive. IGG reported Q3/16 revs of $5.6M (CFCC: $5.8M; Cons: $5.7M), adj. EBITDA of $1.4M (CFCC: $1.4M; Cons: $1.3M), and EPS of $0.01 (CFCC: $0.02; Cons: $0.02). LT-3 ARPU of $29/day was in line with our expectations, however IGG installed 29 less terminals than we had modeled – we have adjusted our forward install numbers accordingly. CFOPS was $1.1M or $0.05/sh. IGG now carries a book value of $1.33/sh (~C$1.77/sh). We maintain our BUY recommendation and C$6.00 TP.
FOCUS POINTS
- LT-3 Units Are Very Profitable. We estimate that every 100 new units installed is worth about $0.50 to our valuation. Over the next few years, IGG could go from ~2,070 LT-3 installed units to ~5,000 with just its current contracts.
- AGP Natural Decline. AGP units decreased by 40 in the qtr. We continue to model a natural decline in AGP units q/q. We note that the EBITDA shortfall is covered by the Amaya agreement. AGP ARPU surprised to the upside in the qtr.($13 vs $11).
- Cash. IGG ended the qtr with ~$10M in cash.
- Looking for a Target. Management is looking at several M&A transactions that would complement and grow its lottery and charitable gaming presence.
- Valuation. On our C2017E, IGG is trading at an EV/Sales and EV/EBITDA of 0.6x and 2.2x, vs the comp group at 2.7x and 10.2x, respectively.
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