cormark securities amaya gaming group inc

7/27/2019 Cormark Securities Amaya Gaming Group Inc

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David McFadgen,CFA (416) [email protected]

COMMUNICATIONS / MEDIA / ENTERTAINMENT

A u g u s t 30, 2012

Amaya Gaming Group Inc.

This Is All About Growth

Unless otherwise denoted, all figures shown in C$

Amaya Gaming (Amaya) is expected to grow significantly over our fore

horizon due to organic and acquisition growth. Based on announcements to d

we expect significant growth in the Caribbean (i.e. Dominican Republic (DR))

Europe. We estimate revenue will increase approximately 4.5x from 2011 to 2

and EBITDA will grow from near zero in 2011 to over $40 MM in 2013.

Caribbean revenue is expected to grow as Amaya continues the deployment o

Mosino hospitality and entertainment gaming platform in resorts and hotels in

Dominican Republic. DR revenue is also expected to grow as Amaya dep

more gaming stations.

European revenue is expected to grow due to the acquisition of online gam

provider Cryptologic Inc. in Q2/12 and the growth of Amayas business

Moldova.

We believe Amaya is well-positioned to benefit from the trend of governme

regulating and licensing online gaming as governments look for other source

revenue to help balance their books. The US is now moving to regulate

license online gaming and the state of Nevada has already licensed sev

parties to offer online gaming within the state. The Company is negotiating

governments and jurisdictions to benefit from this trend.

Amaya has been acquisitive and we expect this to continue although we h

only modeled in announced acquisitions in our estimates.

We are initiating coverage on Amaya with a Buy (S) recommendation and a $4

target price.

Fiscal YE December 2011A 2012E 20

Revenue ($MM) $18.4 $57.3 $

EBITDA ($MM) -$0.06 $12.5 $

Recommendation:Buy (S)

Target Price: $4.80

Company Statistics:

Stock Symbol:AYA - TSXV

Price: $3.63

Share Outstanding:

Basic:78.0MM

Fully Diluted: 88.8 MM

Management: 24.5 MM

Market Cap: $283 MM

Market Float: $194 MM

Net Cash (2012E): $69.1 MM

Average Daily Trading Volume: 85,500

High Low (52-Week): $4.31 - $2.00

Company Description:

Amaya Gaming (Amaya) provides

technology-based gaming solutions for the

regulated gaming industry worldwide.

Amayas solutions service the global online

gaming market, physical gaming

establishments, hospitality entertainment

systems, lotteries and cruise ships.

During the past twenty-four months,Cormark Securities Inc., either on itsown or as a syndicate member,participated in the underwriting ofsecurities for Amaya Gaming GroupInc.

EPS (ops) -$0.04 $0.03 $

EV/EBITDA 18.2Disclosure statements located atthe back and ins ide back cover P/E 121.0


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AUGUST 30,2012 DAVID MCFADGEN,CFA4169436452

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Investment Highlights

Amaya Gaming is expected to grow significantly over our forecast horizon due toorganic and acquisition growth. Based on announcements to date, we expect significantgrowth in the Caribbean (i.e. Dominican Republic) and Europe. We expect revenue toincrease approximately 4.5x from 2011 to 2013 and EBITDA to grow from near zero in2011 to over $40 MM in 2013.

Caribbean revenue is expected to grow as Amaya continues the deployment of itsMosino hospitality and entertainment gaming platform in resorts and hotels in theDominican Republic. DR revenue is also expected to grow as the Company deploysmore gaming stations. Lastly, Amaya has launched its online gaming platform in the DRand we expect it to obtain an eventual 10% market share given its early moveradvantage.

European revenue is expected to grow due to the acquisition of online gaming providerCryptologic in Q2/12 and the growth of Amayas business in Moldova. Amaya has beenawarded an exclusive 20-year contract with the National Lottery of Moldova to provide afull range of gaming solutions including lottery, VLTs, sports betting and online gaming.The big driver of growth in the near term in Moldova is expected to be VLT deployment.

We believe Amaya is well-positioned to benefit from the trend of governmentsregulating and licensing online gaming as governments are looking for other sources ofrevenue to help balance their books. The US is now moving to regulate and licenseonline gaming and the state of Nevada has already licensed several parties to offer onlinegaming within the state. The Company is negotiating with governments and jurisdictionsto benefit from this trend.

Amaya has been acquisitive and we expect this to continue although we have onlymodeled in announced acquisitions in our estimates.

We rate Amaya Gaming a Buy (S) with a target of $4.80.Figure 1 Price Chart

Source: BigCharts (August 29/12)


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Amaya Gaming Company Profile

Amaya ProvidesTechnology-BasedGaming Solutions

Worldwide

Amaya Gaming provides technology-based gaming solutions for the regulated gamingindustry worldwide. The Companys solutions service the global online gaming market,physical gaming establishments, hospitality entertainment systems, lotteries and cruiseships.

The majority of Amayas 2011 revenue was generated from the Caribbean through itsMosino hospitality entertainment system, the sale of gaming stations to local gaminghalls (Bancas), the licensing of its Insync gaming platform and servicing cruise ships.The Companys European revenue was primarily generated via its online gamingsolutions. Amayas African revenue was generated by its servicing of SMS (mobile)lotteries in Kenya and Uganda.

The Company also discloses a revenue breakdown by type of service as seen in Figure 3.Finance lease revenue refers to Mosino units and gaming stations sold at a fixedminimum per day coupled with participation revenue. Software licensing refers torevenue generated from online services operated by Chartwell and Cryptologic, twoacquisitions. Sales revenue refers to lottery revenue. Participation revenue refers torevenue generated from software sales to cruise ships and hotels.

Figure 2 2011 Revenue Breakdown

Caribbean

54%

Other

1%

Africa

13%

Europe

32%

Source: Amaya Gaming

Figure 3 2011 Revenue Breakdown

Finance Leas es

47%

Software

Licensing

36%

Sales

16%

Participation

1%

Source: Cormark Securities Estimates


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Amayas ProductDescription

Amaya offers many different products/solutions for the gaming and hospitality industry.The following is a brief description of its main products/solutions:

Mosino a hospitality and entertainment gaming platform that offers gaming and otherservices on a variety of mobile and fixed devices. Mosino can offer peer-to-peer orhouse-banked games, streams media and targeted advertising and offers video-on-demand services and other interactive services for the hospitality operator. On September

14, 2010, Mosino was deployed at AMHSA Marina Hotels & Resorts in the DominicanRepublic for a five-year participation lease (fixed percentage of revenues generated). OnOctober 7, 2010, it was deployed at Sirenis Hotels & Resorts in the Dominican Republicfor a five-year participation lease. On October 20, 2010, Amaya secured a license(formalizing its previous interim license) in DR allowing it to place Mosino in hotelrooms and other tourist locations throughout the Dominican Republic.

Insync Platform a gaming platform that enables the deployment of gaming applicationsfor peer-to-peer or house-banked games. It can provide operators with a suite ofproprietary games from the Amaya Game Library representing an additional revenuesource for operators.

SMS Lottery enables the mobile phone to effectively become a lottery terminal by

allowing users to purchase and view electronic tickets anywhere, anytime. Consumerssend a SMS to the designated number. Amaya offers three types of lotteries instantlottery, whereby the player immediately knows if they have won; self-pick lottery thatallows players to choose their own winning number combination with the winner to beannounced at a future date; and, scheduled lottery that assigns a ticket to the player withthe winner to be announced at a future date.

Online Gaming Amaya offers an extensive portfolio of approximately 450 onlinecasino games (proprietary and licensed titles) for B2B applications.


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Amayas Economic Model

How Amaya MakesMoney

Amayas economic model differs depending upon its product. The Company generatesrevenue from the outright sale of its solutions and services, technology licensing, leasingor on a production participation basis. Amaya leases its Mosino platform for a share ofthe revenue, considered a sales-type lease. Online gaming and SMS lottery revenue isconsidered an outright sale for its services.

The majority of Amayas costs are fixed to operate its gaming solutions. We believe thatonce its revenue exceeds its cost for its platforms there is significant potential operatingleverage.

Amaya outsources the manufacturing of most of its component costs, but assembly,software integration and testing are done in house.

Amaya Gross AndProduct Margins

Amaya has high gross margins because the direct costs are primarily the cost on thefinance leases, which are minimal. Other direct product costs appear in selling expenses.

We are forecasting the main direct costs to be the cost of finance leases and hence grossmargins are expected to remain high.

We believe its better to look at costs net of selling expenses, but before G&A to get abetter idea of product margins. Looking at Amaya this way, its product margins were57% and 68% in 2011 and Q1/12, respectively. The Companys product margins are highand are expected to remain high for the foreseeable future given its business model.

Figure 4 Amaya Gross, Product And EBITDA Margins

C$000s 2011 Q1/12

Revenue 18,375 6,384

Direct Costs 1,357 258

Gross Margin 17,018 92.6% 6,126 96.0%

Selling Expenses 6,481 1,808

Product Margin 10,537 57.3% 4,318 67.6%

G&A 10,594 4,908

EBITDA (57) 0% (590) -9%

Source: Amaya Gaming

As Amaya Scales ItsRevenue, EBITDA ShouldBenefit From SignificantOperating Leverage

Amaya generated a small EBITDA loss in 2011 and Q1/12. We expect that as revenuescales it will soon generate positive EBITDA. We also believe that as revenue scales itsEBITDA will benefit significantly from operating leverage.


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Competitive Profile

The Industry IsConsolidating

Online gaming is an intensely competitive industry with many players. Many onlinegaming companies are private with limited to no financial information. The large pureonline gaming companies are Betfair Group plc, bwin.party digital entertainment and 888Holdings. bwin.party is the result of a merger between bwin and PartyGaming in 2011.Amaya has been a consolidator as well, acquiring Chartwell Technologies in 2011 andCryptologic in 2012. There are significant cost synergies from combining businesses andthis is one of the key rationales for consolidation. bwin.party is the largest pure onlinegaming company that we track with 2011 pro forma revenue of 816 MM and EBITDAof 182 MM. Ladbrokes and William Hill all offer retail land-based betting locations aswell as online gaming.

Amayas online offering is largely B2B/B2G and not customer facing. In fact, Amayalicenses its products to 888.com and PartyGaming. Therefore, Amaya will power someonline offerings of companies while at the same time competing with these companiesown proprietary or third-party licensed product offerings.

Figure 5 Competitive Profile

Amaya Betfair bwinparty Ladbrokes Unibet William Hill 888 HoldingsC$ Million Million Million (a) Million Million Million US$ Million

2011 ResultsRevenue 18 393 816 976 154 1,137 331EBITDA (0) 80 182 239 48 311 56EBITDA Margin -0.3% 20.4% 22.3% 24.4% 31.1% 27.4% 16.8%

Bloomberg Symbol AYA CN BET LN BPTY LN LAD LN UNIB EU WMH LN 888 LN

ServicesSports Betting Casino & Games Poker

Bingo

a) Pro forma merger of bwin and PartyGamingSources: Cormark Securities estimates, Company reports


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Online Gaming Industry

As Governments Look ForNew Revenue SourcesOnline Gaming Is Being

Legalized

The global online gaming industry is constantly evolving and changing quickly as somecountries move to legalize it. More and more governments around the world are movingto legalize online gaming as they search for more tax dollars. When we refer to onlinegaming, we are primarily referring to online poker, casino games and sports betting givenonline betting for horse racing has been legal for some time, even in the US.

The largest online gaming industries are in the UK and Italy, both countries that havelegalized it and put regulations in place. Other jurisdictions where online gaming is legalis in the Caribbean, where many online gaming companies are located. In other Europeancountries online gaming is illegal (i.e. Switzerland, Russia), or in the process of beinglegalized (i.e. Germany, Netherlands, Denmark, Belgium, Czech Republic) or beingimplemented (i.e. France). Many European countries are trying to block foreign sites toavoid any lost tax revenue.

Online gaming is still not permitted in most of the US, but some states have started toregulate and license it. If online gaming is regulated and licensed in the state it can onlybe offered to residents of the state. Nevada has implemented regulations and has alreadylicensed parties to provide interactive/online gaming. Efforts are underway to legalizeonline gaming in Massachusetts and California.

There are other countries where online gaming is illegal but the government does little tonothing to stop it, such as Canada.

It is frankly difficult to keep up with the changes or proposed changes and we may havemischaracterized the current status of online gaming for some countries aforementionedat the time of this publication given the swift nature of changes taking place.

Amaya is negotiating with governments and jurisdictions around the world to offer itsonline solutions and benefit from this trend.


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Figure 6 Current Status Of Online (Casino / Poker / Sports) Gaming Regulation

Legalized &

Regulated

In Process

of Legalizing IllegaEurope

UKGermanyFranceItaly

Sweden Switzerland Russia Netherlands Denmark Belgium CzechGreeceHungaryRomania

US StatesNevadaNew Jersey Iowa

Connecticut Massachusetts California Ohio Washington DC

All Other StatesCanada

BCAlbertaOntarioQuebec

Caribbean

Sources: 888.com 2011 annual report, PWC Global Gaming report

Global Online GamingIndustry Was 18 BB In2010, Up 23% From 2008

The global online gambling (gaming) industry was 18.3 BB in 2010, up 23% from2008, according to the UK Gambling Commissions report entitled GamblingCommission Industry Statistics 2008-11. UK consumers represented 1.9 BB of theindustry in 2010, also up 23% from 2008.


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Global Gaming (Land BasedAnd Online) Estimated AtApproximately 280 BB in2011

PriceWaterhouseCoopers (PWC) estimated the global (land based and online) gamingindustry was approximately 280 BB in 2011, up 7% Y/Y. Online gaming is estimated tobe approximately 8.5% of the total gaming industry or 23 BB. We acknowledge thedifference in estimates for online gaming between PWC and the UK GamblingCommission, but we believe the main point to understand is that this is a large andgrowing market.

The global gaming market is projected to grow by a CAGR of 4.2% from 2010 to 2015.

Figure 7 Global Gaming Estimates BB

0

100

200

300

400

2006 2007 2008 2009 2010 2011E 2 012E 2013E 2014E 2015E

Source: PriceWaterhouseCoopers


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Dominican Republic And Caribbean Opportunity

Significant Potential UpsideFrom Dominican Republic

The Dominican Republic is a very important and material market for Amaya. Itrepresents the vast majority of Caribbean revenue. The Company operates many different

lines of business in the DR. Amaya operates its Mosino Hospitality System, it sellssoftware licences of Insync, it is selling gaming stations/terminals to bancas (gamingrooms) throughout the country and it launched its own online gaming site in Q4/11.Given the early stage of the Companys development in the DR it is difficult to estimatefuture revenue.

Amaya is expected to continue its deployment of its Mosino Hospitality System to otherresort and hotel operators. In 2011, the Company deployed approximately 1500 systemsOne room is one system. The monthly ARPU is approximately $75, but it can varythroughout the year depending on occupancy and usage. We forecast that Amaya willdeploy approximately 4800 systems in both 2012 and 2013.

Amaya benefits from gaming station/terminal deployment from the sales-type leaserevenue generated from selling gaming stations and participating in win per day. Thecompany generates approximately $7000 per gaming station and also receives a smallpercentage of the net gaming revenue in excess of guaranteed minimums.

We forecast that Amaya will generate $16.6 MM and $20.0 MM of revenue from the DRin 2012 and 2013, respectively.


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Figure 8 Dominican Republic Opportunity

2011A 2012E 2013E

Mosino Hospitaliy System

Units OutstandingOpening Balance - 1,500 6,265Additions 1,500 4,765 4,800Ending Balance 1,500 6,265 11,065

Monthly ARPU $75 $75 $75

Revenue ($000s) $484 $3,347 $7,799

Insync Revenue ($000s) 1,294 4,051 1,200

Gaming Station Sales Type Lease RevenueRevenue per Unit $7,000 $7,000 $7,000

Units Sold 1,136 1,103 1,200Revenue ($000s) 7,954 7,721 8,400

Gaming Station Participating RevenueGaming Stations DeployedOpening Balance - 1,136 2,239Additions 1,136 1,103 1,200Ending Balance 1,136 2,239 3,439

Gaming Station Participating Revenue ($000s 198 1,486 2,635

Online RevenueDR GGY Online Market Size ($000s) 21,314 21,314 21,314AYA Market Share n/a 6% 10%AYA Online Revenue ($000s) n/a 1,279 2,131Total DR Revenue ($000s) 9,930 16,606 20,034

Sources: Cormark Securities estimates, company reports

Dominican Republic OnlineGaming Market

The DR government softened its attitude toward online gaming in 2006 and granted theMinistry of Finance the right to issue licenses for all games of chance, including online.The first online license was issued in February 2011 by the Ministry of Finance, and

Amaya received its license to operate online gaming in February 2011. The Companylaunched its online site (www.ganegrande.do) in Q4/11.

In order to estimate DR online revenue we have used the UK data as a proxy given itsthe largest and most regulated online gaming market in the world. We estimate that theaverage adult (16+) that gambles online, spent approximately 2.5% of its average grossnational income (GNI) or 956 online. For estimating the online market in the DR weused the statistic that approximately 4% of adults gamble online and that they spend2.5% of their gross national income on online gambling.

We derived the statistic of 2.5% of gross national income spent on online gaming bystarting with the UKs population base of 62.3 MM and then deriving the adult (16+)population at 80% or 49.8 MM, based on UK government statistics. According to

eMarketer, approximately 77% of UK adults use the internet frequently. According to theBritish Gambling Prevalence Study approximately 4% or 2.0 MM adults gamble onlineThis also implies that approximately 5% of adults who use the internet gamble online.The UK Gambling Commission estimates that the UK Gross Gaming Yield (GGY)online is 1.9 BB. If we then divide the GGY online by 2.0 MM, the number of adultsgaming online, we derive the average adult who gambles online spends 956 annuallyAccording to the World Bank the UK GNI is 38,450. If we divide the average adultgaming spend of 956 by the GNI of 38,450 we obtain that the average adult gamblingonline spends approximately 2.5% of his/her GNI. We use the following statistics as abase to estimate other online gaming markets: approximately 4% of UK adults gamble


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online; approximately 5% of adults who use the internet gamble online; and, UK adultswho gamble online spend 2.5% of their GNI.

Figure 9 UK Adult Annual Expenditures On Online Gaming

a UK Population (000s) 62,262

b UK Adult Population (000s) 49,810

c UK Adult Population That Uses the Internet (000s) 38,353

d Adults That Gamble Online (000s) 1,992

e Gross Gaming Yield Online (Market Size) (000s) 1,904,000

f=d/e UK Adult Annual Expenditures on Online Gaming per Person 956

g UK GNI (2010) 38,450

h=f/g UK Adult per Person Annual Expend. on Online Gaming as a % of GNI 2.49%

Sources:a, b http://statistics4u-uk.com/html/mid-year_estimates.htmlc eMarketer UK Internet Users and Usage: Top 2010 Trendsd British Gambling Prevalence Study, p 21e UK Gambling Commission - Industry Statistics 2008-2011, p 33g World Bank

Dominican Republic Online

Gaming Market EstimatedAt $21.3 MM

We estimate that the DR online gaming market will be approximately $21.3 MM

operating under the assumption that 3% of adults (15+) or 212,000 gamble online, or 8%of adults who use the internet will gamble online, and that they spend 2% of their annualgross income or $101 on online gaming.

Figure 10 Dominican Republic Online Market Size

a DR Population (000s) 10,089b DR Adult Population (000s) 7,062c DR Adult Population that use the internet (000s) 2,733d Adults that gamble online (000s) 212

e DR GNI C$5,030f DR adult annual online gaming expenditures as a percentage of GNI 2.0%

g=e*f DR Gross Gaming Yield (GGY) per adult C$101

h=d*g DR GGY Online Market Size ($000s) C$21,314

Sources:a, b https://www.cia.gov/library/publications/the-world-factbook/geos/dr.htmlc http://www.internetworldstats.com/car/do.htmd, f Cormark estimatee http://data.worldbank.org/country/dominican-republic

We believe Amaya is one of the few companies that has been granted a license to operateonline gaming. However, we believe that DR citizens could gamble on any websiteworldwide. Hence, we believe the Company will likely capture a small percentage of themarket given the intense competitive nature of online gaming. We forecast Amaya willcapture 6% and 10% of the DR online gaming market in 2012 and 2013, respectively.


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Moldova Opportunity

In September 2011, Amaya announced that it had been awarded an exclusive 20-yearcontract with the National Lottery of Moldova to provide a full range of gaming solutionsincluding lottery, VLTs, sports betting and online gaming. The Company stated that thiscontract has the potential to generate recurring revenue in excess of $20 MM annually.

Similar to the DR, in order to estimate Moldova online revenue we have used the UKdata as a proxy given its the largest and most regulated online gaming market in theworld. We used the statistic that approximately 4% of UK adults gamble online and theyspend approximately 2.5% of their gross national income on online gambling whenestimating the online market for Moldova.

We estimate that the Moldova online gaming market potential is $3.4 MM. We derivethis by starting with the population of Moldova at 3.7 MM and that adults (15+)represent 3.1 MM. We understand that approximately 43% of the Moldova populationuses the internet. We are estimating that 3% of adults, or 93,000, will gamble online andthis also represents 7% of the population that uses the internet. We understand that theaverage GNI for Moldova is US$1,810. We estimate that approximately 2% or US$36 ofthe online gamblers GNI will be spent online. If we take the estimated number of onlinegamblers of 93,000 and we multiple it by US$36 the annual online gaming market forMoldova is estimated at US$3.4 MM.

Figure 11 Moldova Online Market Size

a Moldova Population (000s) 3,657b Moldova Adult Population (000s) 3,108c Moldova Adult Population that use the internet (000s) 1,352d Adults that gamble online (000s) 93

e Moldova GNI US$1,810f Moldova adults annual online gaming expenditures as a % of GNI 2.0%

g=e*f Moldova Gross Gaming Yield (GGY) per adult US$36

h=d*g Moldova GGY Online Market Size ($000s) US$3,376

Sources:a, b https://www.cia.gov/library/publications/the-world-factbook/geos/md.htmlc http://en.wikipedia.org/wiki/Telecommunications_in_Moldovad, f Cormark estimatee http://www.indexmundi.com/facts/moldova/gni-per-capita

We recognize that Amaya has been awarded an exclusive license to operate gaming andthis includes online gaming, yet we believe that Moldovan citizens could gamble on anywebsite worldwide. Hence, we believe the Company will likely capture a smallpercentage of the market given the intense competitive nature of online gaming. Weforecast Amaya will capture 4.5% and 10% of the Moldova online gaming market in

2012 and 2013, respectively.

We believe the biggest upside for Amaya in Moldova is from the deployment of VLTsgiven the Company has an exclusive license. We forecast Amaya to deploy 1500 and3000 VLTs in 2012 and 2013, respectively. We forecast Amaya will generate $2.0 and$18.0 MM of VLT revenue in 2012 and 2013, respectively.


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Figure 12 Moldova VLT Opportunity

2012E 2013E

Units DeployedOpening Balance - 1,500Additions 1,500 3,000Ending Balance 1,500 4,500

AYA VLT Revenue (C$000s) 2,025 18,000

Source: Cormark Securities estimates

We estimate the Moldova lottery market potential is $42 MM. We arrived at our estimateby using the province of Ontario as a base case. Ontario Lottery & Gaming (OLG)generates $2.8 BB annually from lottery. OLG states that approximately 53% of Ontarioadults play lottery. We estimate that the average Ontario adult who plays lottery spendsapproximately $480 annually and this represents approximately 1.6% of average Ontarioincome. We use this statistic of 1.6% spent on lottery in order to estimate the totalMoldova lottery market.

Figure 13 Ontario Lottery Player Profile

a OLG Lottery Revenue ($MMs) $2,840

b Ontario Population (MMs) 13.4c Ontario Adult Population (MMs) 11.2d Ontario Adults That Play Lottery (MMs) 5.9e=d/a Average annual spend on lottery per adult $480

f Average Ontario Income $29,520

g=e/f Average lottery spend as a percentage of income 1.6%

Sources:a OLG 2010 Report, p 35b http://www.fin.gov.on.ca/en/economy/ecupdates/factsheet.htmlc http://www.fin.gov.on.ca/en/economy/demographics/projections/d OLG Lottery Player Demographics Fact Sheetf http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil105g-eng.htm


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We estimate the Moldova lottery market will be $42 MM. In order to derive this we startwith the Moldova adult population of 3.1 MM and assume that 50% will play lottery. Wealso assume that adults who play lottery will spend 1.5% of their GNI resulting in theaverage adult spending $27 annually on lottery. Multiplying a $27 annual lottery spendby the number of adult lottery players results in an annual market of $42 MM.

Figure 14 Moldova Lottery Market Size

a Moldova Population (000s) 3,657b Moldova Adult Population (000s) 3,108c Moldova Adult Population That Plays Lottery 1,554

d Moldova GNI (US$) 1,810

e Lottery spend as a percentage of income 1.5%f=d*e Average adult lottery spend ($) 27

g=c*f Total Lottery Market (US$000s) 42,197

Sources:a, b https://www.cia.gov/library/publications/the-world-factbook/geos/md.htmld http://www.indexmundi.com/facts/moldova/gni-per-capitae Cormark estimates

Amaya shares the lottery revenue in Moldova given its partnership with the government

On a net basis we expect the Company to recognize 12% of its share of the revenue as netrevenue after splitting the proceeds with its local partners. We forecast that Amaya willgenerate approximately $2.5 MM annually in Moldova lottery revenue in 2012 and 2013.


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Financial Forecasts

2012 Outlook We provide a forecast summary of our estimates for Amaya by geography.

We are expecting Amayas Caribbean revenue to grow by approximately 80% in 2012

versus 2011 as its base of Mosino terminals is expected to grow from approximately1500 at December 2011 to approximately 6300 by December 2012. The other key driverfor Caribbean revenue to grow is the number of gaming stations deployed in Bancas torise from 1136 to 2239 by the end of 2012. The Company generates revenue from thesale of the gaming stations and also receives a small percentage of the net gamingrevenue in excess of guaranteed minimums.

We are expecting Amayas European revenue to increase approximately five fold in 2012versus 2011 due to the acquisition of Cryptologic, growth at Charwell and new revenuefrom Moldova with the launch of its online gaming and lottery businesses and thedeployment of VLTs starting in Q3/12. Excluding Cryptologic we expect AmayasEuropean revenue to increase approximately 2.5x.

We are forecasting new revenue from North America (i.e. Canada) as Amaya powersLotto Quebecs online gaming solutions starting in Q3/12.

Amaya reported positive EBITDA in Q2/12 and we expect it to continue to rampEBITDA as revenue increases. We forecast the Company to generate an EBITDA marginof 22% in 2012.

2013 Outlook In 2013, we forecast Amayas Caribbean revenue to increase approximately 24% drivenby the growth of Mosino units deployed and the number of gaming stations deployed.

We are expecting the Companys European revenue to increase approximately 80% in2013 versus 2012 due to an additional quarter pickup of revenue from the Cryptologicacquisition and continued deployment of VLTs in Moldova.

We are forecasting revenue from North America (i.e. Canada) to approximately doubleas Amaya generates revenue for four quarters in 2013 as opposed to two quarters in 2012as it powers Lotto Quebecs online gaming solutions.

We forecast Amaya to generate an EBITDA margin of 45% in 2013. We recognize thatthis EBITDA margin is substantially above other online gaming companies; however,Amaya is recognizing revenue net of other parties share of revenue resulting in it beingvery high margin.

Balance Sheet Is Strong Amaya recently completed an equity financing in of 25.6 MM shares at $4.05 for grossproceeds of $103 MM in Q2/12 and a follow on financing of 1.5 MM shares at $4.05 for

gross proceeds of $6 MM in Q3/12. Amaya is expected to use the proceeds foracquisitions. Given we do not know the nature of the acquisitions we have modeled forAmaya to retain the cash on its balance sheet. This is reason why were forecastingAmaya to have approximately $100 MM of cash at December 2012.


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Figure 15 Amaya Gaming Forecast Summary

($000s) FYE Dec 31 2011A 2012E 2013E

Geographic Revenue Breakdown

Caribbean 9,930 17,885 22,165

Europe 5,806 32,926 58,777

North America - 2,000 8,000

Other 2,638 4,462 2,736

- -

18,375 57,273 91,678

Cost of products 1,357 2,539 4,584

Gross profit 17,018 54,734 87,095

92.6% 95.6% 95.0%

Selling 6,481 15,240 20,902

G&A 10,594 26,985 24,525

EBITDA (57) 12,509 41,668

(0.3)% 21.8% 45.4%

Key Revenue Drivers

Caribbean

Mosino Units Deployed 1,500 6,265 11,065

Gaming Stations Deployed 1,136 2,239 3,439

Moldova

VLTs Deployed - 1,500 4,500



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Valuation

We Are Valuing AmayaUsing An 8.0x EV/EBITDAMultiple On 2013E

We are valuing Amaya using an EV/EBITDA multiple of 8.0x on our 2013 estimates. Werecognize that other online gaming companies may trade at lower multiples but given theCompanys growth outlook is significantly higher we believe the application of an 8.0xmultiple is appropriate. We derive a target of $4.80.

Figure 16 Amaya Gaming Public NAV

Fiscal YE Dec 31 ($000s) 2012 201

EBITDA 12,509 41,66Multiple 8.0 8.0EV 100,071 333,34

Debt 3,303 3,30Cash 98,554 102,51Cash from options 11,046 11,04

Equity Value 206,368 443,59

Shares Outstanding 77,968 77,96Dilution from Options 13,914 13,91

91,881 91,88

Equity Price $2.25 $4.8



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Risks To Forecast

Amaya Operates In ManyJurisdictions With DifferentProducts Resulting In

Difficulties In AssessingAnd Estimating Its Business

Amaya operates in many different jurisdictions around the world, from the Caribbean toEurope, and offers different types of products from online gaming to lotteries to VLTsand others. This wide scope of operations makes it difficult to analyze and forecast theCompanys results. This difficulty could result in our estimates being significantlydifferent than actual results.

Many Of AmayasOperations Have Yet ToLaunch

Many of Amayas operations have yet to launch and this poses some difficulty inforecasting the Companys outlook accurately.

Subject To GovernmentRegulation

Amaya participates in serving the regulated online gaming industry worldwide. Adversegovernment changes to regulation could have a material impact to Amayas outlook.


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20

Financial Statements

Figure 17 Amaya Gaming Income Statement

Fiscal YE December 31 2012E

($000s) 2011A Q1/12A Q2/12A Q3/12E Q4/12E 2012E 2013E

Revenue $18,375 $6,384 $14,540 $16,384 $19,966 $57,273 $91,678

Cost of products 1,357 258 463 819 998 2,539 4,584Gross profit 17,018 6,126 14,076 15,565 18,967 54,734 87,095

Selling 6,481 1,808 3,526 4,695 5,210 15,240 20,902G&A 10,594 4,908 9,377 6,450 6,250 26,985 24,525

EBITDA (57) (590) 1,172 4,420 7,507 12,509 41,668

Financial 680 223 1,541 814 823 3,401 3,322Amortization of PPE 798 378 561 650 650 2,239 2,600

Amortization of intangibles 979 684 1,392 850 850 3,776 3,400Amortization of dev. costs 384 75 79 100 100 354 400Stock based compensation 989 173 167 250 250 840 1,000F/X - 132 - - - 132 -Minority interest - - (251) - - - -

- - - - - - -(3,886) (2,255) (2,317) 1,756 4,834 2,018 30,946

Current taxes 43 0 63 - - 64 2,858Deferred taxes (2,003) (1,313) (19) 263 725 (344) 1,784

(1,960) (1,313) 44 263 725 (281) 4,642

Net earnings (ops) (1,926) (942) (2,361) 1,492 4,109 2,298 26,304

One time expenses - 3,616 112 - - 3,729 -- - - - - - -Net earnings $(1,926) $(4,558) $(2,474) $1,492 $4,109 $(1,431) $26,304

Basic shares 45,305 50,235 51,364 77,227 77,968 64,198 77,968Diluted shares 45,305 52,174 53,218 88,098 88,838 70,582 88,838

Earnings Per ShareBasic (ops) $(0.04) $(0.02) $(0.05) $0.02 $0.05 $0.04 $0.34Diluted (ops) $(0.04) $(0.02) $(0.04) $0.02 $0.05 $0.03 $0.32

Basic $(0.04) $(0.09) $(0.05) $0.02 $0.05 $(0.02) $0.34Diluted $(0.04) $(0.09) $(0.05) $0.02 $0.05 $(0.02) $0.30

MARGIN ANALYSISGross 92.6% 96.0% 96.8% 95.0% 95.0% 95.6% 95.0%EBITDA -0.3% -9.2% 8.1% 27.0% 37.6% 21.8% 45.4%Pre-tax -21.1% -35.3% -15.9% 10.7% 24.2% 3.5% 33.8%Net Income (ops) -10.5% -14.7% -16.2% 9.1% 20.6% 4.0% 28.7%Tax rate 50.4% 58.2% -1.9% 15.0% 15.0% -13.9% 15.0%



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Figure 18 Amaya Gaming Balance Sheet

Fiscal YE December 31($000s) 2011A 2012E 2013E

Assets

Cash $3,049 $98,554 $102,51Investment in marketable securities 2,332 -

Investment tax credits receivable 434 425 425Receivables 4,733 9,873 12,204Income tax receivable 179 407 407Inventories 983 1,000 1,000Current maturity of receivable under finance lease 2,270 3,841 3,84Prepaids 2,348 5,000 5,000Net investment in lease - -

- - 16,327 119,100 125,388

Restricted cash 119 116 116Goodwill and intangibles 10,371 36,028 43,628Loan receivable - - P&E 6,780 18,606 32,006

Deferred development costs 669 1,525 3,125Receivable under finance lease 8,293 13,369 13,369Investment tax credit receivable long term 1,215 1,092 1,092Deferred income taxes 3,427 1,583 (201

- - $47,201 $191,418 $218,522

Liabilities and Shareholder's Equity

Bank indebtedness 2,097 2,000 2,000Payables 2,403 5,476 5,276Promissory notes - - Loans payable - - F/X - - Income taxes payable - 725 725Customer deposits - 2,221 2,22LT debt 300 431 43Bridge facility - -

- - 4,800 10,853 10,653

Deferred revenue 47 93 93LT debt 725 872 872Convertible debentures - 26,193 26,193

- - 5,572 38,012 37,812

Share capital 42,922 151,569 151,569Contributed surplus 1,815 2,900 2,900

Accumulated other comprehensive income 363 398 398Minority interest - 2,941 2,94Deficit (3,470) (4,401) 22,903

- - 41,630 153,406 180,710

$47,201 $191,418 $218,522



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Figure 19 Amaya Gaming Cash Flow Statement

Fiscal YE December 31($000s) 2011A 2012E 2013

Operating activities

Net earnings $(1,926) $(1,431) $26,30

Interest accretion on promissory notes 9 -Interest accretion on loan receivable - -Interest accretion on special warrants - 1,072Unrealized loss on F/X (263) 13Amortization of P&E 798 2,239 2,60Amortization of intangibles 979 3,776 3,40Amortization of development costs 384 354 40Deferred taxes (2,003) (338) 1,78Stock based compensation 989 840 1,00Finance lease (7,783) (6,647)Research and development tax credits 580 151

- -(8,237) (221) 35,48

Changes in working capital (2,960) (4,648) (2,53(11,198) (4,869) 32,95

Financing activities

Bank indebtedness (250) (97)Bridge facility - -ST investments - -Promissory notes (460) -Repayment of shareholder loans - -Repayment of research and development loan - -Capital stock 15,821 107,304LT debt (300) (150)Convertible debentures - 26,598Financing expenses - -

- -14,811 133,655

Investing activities

Deferred development costs (960) (1,369) (2,00PPE (2,323) (12,459) (16,00Intangibles (3,811) (5,703) (11,00Acquisitions, net of cash acquired (13,738) (16,009)ST investments 12,205 -Marketable securities (1,166) 2,429

- -(9,794) (33,110) (29,00

Increase in cash (6,181) 95,676 3,95

Cash, beginning of year 9,261 3,049 98,55F/X (31) (171)Cash, end of year $3,049 $98,554 $102,51



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23

Figure 20 Communications and Media Comparables

Shrs Market Non-

Bloomberg Fiscal Stock O/S Cap Cash Debt Consol. EV EBITDA EPS EV/

Company Symbol Curr Year Price (MM) (MM) (MM) (MM) (MM) (MM) (MM) FD EBITDA P/E

ONLINE GAMING

Current f iscal year

Amaya Gaming AYA CN CAD Dec-12 $3.63 78 $283 $99 $3 $(39) $227 $13 $0.03 18.1x 121.0xBetfair BET LN GBP Apr-13 $7.04 105 $736 $172 - - $564 $93 $0.40 6.1x 17.6x

bwinparty BPTY LN EUR Dec-12 $0.98 811 $795 $290 $33 - $538 $164 $0.15 3.3x 6.5x

Ladbrokes LAD LN GBP Dec-12 $1.70 908 $1,544 $104 $480 - $1,920 $259 $0.17 7.4x 10.0x

Unibet UNIB EU GBP Dec-12 $15.27 28 $432 $59 - - $372 $57 $1.43 6.5x 10.7x

William Hill WMH LN GBP Dec-12 $2.99 702 $2,099 $218 $460 - $2,341 $346 $0.27 6.8x 11.1x

888 Holdings 888 LN USD Dec-12 $0.87 348 $302 $99 - $(38) $241 $58 $0.11 4.2x 7.9x

Next f iscal year

Amaya Gaming AYA CN CAD Dec-13 $3.63 78 $283 $103 $3 $(39) $223 $42 $0.32 5.4x 11.3x

Betfair BET LN GBP Apr-14 $7.04 105 $736 $204 - - $533 $105 $0.52 5.1x 13.5x

bwinparty BPTY LN EUR Dec-13 $0.98 811 $795 $343 $33 - $485 $175 $0.16 2.8x 6.1x

Ladbrokes LAD LN GBP Dec-13 $1.70 908 $1,544 $180 $480 - $1,844 $253 $0.17 7.3x 10.0x

Unibet UNIB EU GBP Dec-13 $15.27 28 $432 $79 - - $353 $65 $1.63 5.4x 9.4x

William Hill WMH LN GBP Dec-13 $2.99 702 $2,099 $321 $460 - $2,238 $343 $0.28 6.5x 10.7x888 Holdings 888 LN USD Dec-13 $0.87 348 $302 $117 - $(38) $223 $59 $0.12 3.8x 7.3x

Source: Cormark Securities estimates, Bloomberg


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AUGUST 30,2012 DAVID MCFADGEN 4169436452

24

RecommendationTerminology

Cormarks recommendation terminology is as follows:

Top Pick our best investment ideas, the greatest potential value appreciationBuy expected to outperform its peer groupMarket Perform expected to perform with its peer groupReduce expected to underperform its peer group

Our ratings may be followed by "(S)" which denotes that the investment is speculativeand has a higher degree of risk associated with it.

Additionally, our target prices are based on a 12-month investment horizon.

Disclosure Statements andDissemination Policies

A full list of our disclosure statements as well as our research dissemination policies andprocedures can be found on our web-site at: www.cormark.com

Analyst Certification I, David McFadgen, hereby certify that the views expressed in this research reportaccurately reflect my personal views about the subject company(ies) and its (their)securities. I also certify that I have not been, and will not be receiving direct or indirectcompensation in exchange for expressing the specific recommendation(s) in this report.


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AUGUST 30,2012 DAVID MCFADGEN 4169436452

25

Figure 21 Amaya Gaming Group Inc. Disclosure Chart

Source: Cormark Securities Inc.


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TORONTO

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www.cormark.com

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The information and any statistical data contained herein have been obtained from sources believed to be reliable as of the date of publication, but theaccuracy or completeness of the information is not guaranteed, nor in providing it does CSI or CUSA assume any responsibility or liability. All opinionsexpressed and data provided herein are subject to change without notice. The inventories of CSI or CUSA, its affiliated companies and the holdings of

their respective directors, officers and companies with which they are associated may have a long or short position or deal as principal in the securitiesdiscussed herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or placement agent for a private placement of any of thesecurities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, or other services for such companyThe securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or the income they produce may fluctuateand/or be adversely affected by exchange rates.

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