PARTYGAMING

PartyGaming plays a winning hand
Sat 22 Oct 2005

ALASTAIR REED

INTERNET casino and poker room PartyGaming said a tactical split with partners this month had boosted poker growth, reassuring investors in its battered stock and lifting shares 10 per cent.

PartyGaming's highly volatile shares have more than halved in value since the company warned in September that its rapid growth was moderating.


But after PartyGaming said it was comfortable with analysts' forecasts for 2005 revenues, the shares clawed back 8p to close at 86p, having earlier touched 87p.

Shares in online gaming have swung wildly in recent weeks as investors struggle to identify the leaders in a sector valued at up to $12 billion (£7bn) a year globally, and where firms rake in hundreds of thousands of pounds every hour.

"Since the end of September, there has been a marked improvement in poker and casino," chief executive Richard Segal said, as the firm posted a 32 per cent lift in third-quarter revenues to $220 million.

He added that PartyGaming's partial split this month from partner websites like Empire Online had helped boost revenues for its PartyPoker site by more than 10 per cent.

"The pick-up post-split is in line with our expectations, and it's not even two weeks since the platform split occurred," Segal said. "We have seen some players coming across ... but we would expect a seasonal pick-up as we come into the longer winter months."

Citigroup said the results "should provoke some relief", and "dispel the worst fears short-term".

"We remain bullish that management have the tools to re-stimulate growth," the broker said in a research note.

Citigroup gives the shares a fair-value estimate of 223p, and a price target of 160p this year, almost double their current price.

Analysts had expressed concern that the partial split from partners known as "skins", might hit poker revenues.

Empire warned on Tuesday the move would drag its 2005 net profit 10 per cent below consensus estimates, knocking other online gaming stocks.

"Skin" sites act as a facade for PartyGaming's internet poker room, directing their own players there in return for a cut of profits.

"PartyGaming sign-ups will have benefited from Empire and Coral customers leaving the inferior skins network, an improved seasonal trend in poker, and the new products on offer after the technology upgrade," said Matthew Gerard at Investec Securities.

PartyGaming's Segal said he was encouraged by the performance of two new games on his site, following the technology upgrade.

"The reaction of customers on blackjack and side bets has been extremely positive," he said. "It has been material and immediate."

PartyGaming said the overall number of customers, measured by total active player days, rose 53 per cent year-on-year to 12.2 million in the third quarter of its financial year. But third-quarter casino revenues fell 19 per cent from second-quarter levels to $11m.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: "These are very strong numbers and go some way to restoring PartyGaming's bruised reputation."