RE: OPAY Broker Update......5 Dec 2013 16:22
Furthering its lead in US online gaming - Maintain BUY, target 380p
What's new?
Optimal Payments has partnered with 888.com to offer a pre-integrated payment solution for the US gaming market. The partnership covers the 888.com brand and all other licensed operators who use the 888 platform in the US. 888 currently has agreements in place with operators in Nevada, New Jersey and Delaware. The Optimal Payments solution includes payment, gateway and digital wallet services specifically designed to meet the requirements of US state gaming regulators.
Impact on the Canaccord Genuity view
We believe Optimal Payments is ahead of competitors in the US online gaming market. The company has a strong brand and was early in developing a broad range of solutions specifically for US online gaming. Optimal is investing in a broad product suite including credit card, debit card and electronic cheque processing, risk services, geo location, PCI compliance, chargeback management, reporting and other value added services that currently appears unmatched by competitors. In addition, the North American based management has strong relationships with key players in the US and has signed key partnerships, including Bally Technologies, Caesars Interactive Entertainment and 888.com, which we estimate together cover over half the licensees in Nevada and New Jersey.
We believe the US online gaming market may be another driver of long-term outperformance for Optimal Payments. We have taken a very conservative approach to the market in our forecasts. We have not built any significant impact from US online gaming until 2015. Despite Optimal's solution already being live and processing for licensed operators in the US, we believe the rate of uptake and ultimate profit potential of the opportunity is uncertain. Estimates for the size of the New Jersey market alone range from $200m to the state's aspirational $1.2bn.
Valuation
We believe Optimal Payments continues to take market share in the rapidly growing STP and ewallet markets, supported by leading technology, tactical improvements and strong partnerships. We reiterate our multiples-derived target price of 380p.
Share performance catalyst
We believe continued earnings outperformance, new US states such as California, New York and Illinois opening, and operational progress of the US online gaming market may drive shares higher.