Stock Watch: Amaya Inc. (AYA)

Amaya Inc.
Symbol: AYA
Current Price: $14.65 USD / $19.08 CAD
Recommendation: BUY

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I have had a few chances to meet with David Baazov through a business partner of mine who has done work with him for many years now. I have sat in on meetings and attended events where he was at. I don’t particularly like the guy, and I am not alone in sharing that sentiment. The feeling is not jealousy, although, I wouldn’t mind changing my net worth for his, but rather, the feeling is more of a dislike of his disconnect.

Baazov works about as hard and as often as anyone I have ever met in my entire life. His pursuit of perfection is relentless. No doubt, his drive and ambition has led him to do some questionable things, but from a business perspective, everything he has done up to this time and now has been, well, brilliant. But it is difficult to have a connection with someone in the same industry as you even be it for just a couple minutes, when the person simply is always thinking about something else, thinking about what is next. But, at the end of the day, this is the world of financial trading and feelings get left at the door. When buying shares in a company the most important thing to do is believe in the person running the company, and from the brief time I spent around David Baazov, one thing was extremely clear to me, he will do whatever it takes to win. He is the type of guy I want my money in on.

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Regardless of who has their name listed as CEO on paper, the truth is that Baazov is still running this company. He owns roughly 17% of the shares in the company and while dealing with his court case is without question advising Rafi Ashkenazi from the sidelines. High ownership in the company is another important factor when buying shares in a gaming company, almost as important as who is running it. If you can find a combo like Amaya where the guys at the top of the charts are highly invested themselves, you can be sure the motivation in always going to be there to improve the bottom line.

Market share is another important factor in the gaming industry. Amaya of course, owns both Poker Stars and Full Tilt which combine to house play for 72% of the online industry, roughly 100 million active users. Poker Stars strong marketing footprint along with the continuous innovation to speed up play, get more hands dealt and in turn generate more rake is leaps and bounds ahead of the remainder of the industry. Poker Stars will forever be at the Coca Cola mark where they are so established that regardless of what competitors come up now, the brand and name is so strong it will always hold the share of the market.

Amaya for me checks all the boxes when looking from the outside as a stock to narrow down. A cerebral leader that is highly invested and does whatever it takes, strong market share and leading innovation.
The question now becomes, what is the big picture and does the price make sense?

The big picture for Amaya is the United States. It was the reason Bazzov did what he did to raise the 4.9 billion dollars to buy Poker Stars and Full Tilt. He ultimate and only goal out of all of this was to get poker re-established in the United States and take advantage of the massive market. This, as I write this, is slowly coming into fruition. On Friday February 10th, a preliminary bill was put into the house in Pennsylvania. This bill should be passed at the initial stage mid March. It would then hit the senate mid April and be on the desk of the governor by mid May.

Pennsylvania would be a big win, but what interests me the most is what is going on in New York. Last year the vote to regulate Poker in the State of New York passed 53-5 in the Senate, but Gary Pretlow shot down the bill and declared it dead in the Assembly. Pretlow, the one key clog in the path to regulation has since turned on his stance and is in approval of the newly pending bill. The debate in New York is because it is against the law to expand any type of gaming which is not skill based. This issue has been relived because Pretlow has since defined poker as a game of skill.

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If Pennsylvania falls in place, then New York will follow shortly after. These two States should create a domino affect across the country. With each State voting for regulation and legalization of online poker, Amaya puts themselves in a better and bigger position to grow. Each State could drive the price of the stock up $1-$3. With the current price at $14.50, should both States fall into place, we could be looking at Amaya shares being valued in the mid $20’s by the end of the year, a very nice return on investment. To make matters even more positive, many people in the industry are expecting the final quarter results for Amaya to be very positive after a disappointing Q3 in 2016. This spike in revenue should cause a lot of excitement around the stock heading into these government hearings and provide a nice momentum in the market.

With the court case for Baazov expected to wrap up by the end of 2017, there is potential for him to try take the company private again. I have little doubt he gets let off his charges and takes back at the helm of the company. His connections with Hong Kong funds gives him basically an unlimited source of funds to work with for financing. He has already offered $24 a share (about 6.7 billion total offer) in 2016 which caused the price to rise like crazy, and I would not be shocked to see him come over the top with another big offer when all the dust clears, especially after multiple State regulations. I see a ton of upside in Amaya for 2017, and recommend a buy at $19.08 (CAD) or $14.65 (USD).

 

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Author: Adam Chernoff

Adam went from small town Saskatchewan to being an Oddsmaker in Medellin, Colombia. On his blog, adamchernoff.com you can read stories about his wild decade of gambling.

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