Party Shares Slip 10% on 'Slightly Disappointing' Update

PartyGaming, the online gambling operator, revealed the departure of Mitchell A. Garber, its former chief executive, will result in a one-time charge of $4 million.

The charge, related to Mr. Garber's May 2008 departure announcement, covers his release from a 12 months' notice period, as well as the remainder of no-cost share options awarded to him from the employee share pool.

The announcement came on Tuesday's second-quarter trading update, where the company said revenue fell slightly on "seasonality" and competition for players' leisure time during the UEFA European Football Championship in June.

A "weaker than expected" performance in sports betting and poker was offset, it said, by a strong performance in its casino business. Metrics were not provided.

Casino was bolstered by the introduction of two movie-branded slots, per a December 2007 licensing deal with Paramount Pictures, while bingo has gained traction on a September 2007 deal with ITV, the United Kingdom television network.

Poker revenue, down 8 percent when the quarter commenced on April 28, continued to lag on strong competition from networks, like those of FullTilt and PokerStars, that continue to take United States play.

Gross win margins for sports betting were impacted negatively by a poor run of results at the beginning of UEFA 2008.

The company made no mention of the performance of its Italian sports book during the tournament, licensure for which was secured in April from the Autonomous Administration of State Monopolies, Italy's regulatory authority.

Analysts with Numis Securities, a brokerage in London, called the update "slightly disappointing," but maintained their "buy" recommendation and 410 pence price target.

"In our view, Party's current valuation is too low and is significantly undervaluing the groups high double digit medium term EBIT growth, strong cash generation, potential DOJ deal over the coming six months and future additional growth from new product launches and strategic partnerships," read a Tuesday research note from Numis.

PartyGaming, with a market capitalization of £902 million, was down 24.75 pence, or 10 percent, to 223.50 pence.

No update on current trading was given.

IGN's Take

Striking is the clear disparity in brokerage target prices for PartyGaming; in a research note today, Deutsche Bank lowered its price from 300 pence to 280 pence, while Numis held its 410 pence target.

While it does not fall within the charter of Interactive Gaming News to offer investment advice, a run with Party is compelling but, as we've observed, risky.

Its share price is quite mercurial and prone to swings, especially on news -- even rumors -- of its dealings with the United States Department of Justice, while today, on a trading update, its market cap slid by around £100 million.

Analysts maintain a settlement with the United States could catalyze shares, and the business, with cash of $213 million -- and barring a survivable agreement with the Justice Department -- looks poised for new partnership deals and smaller acquisitions.

The current weakness in share value certainly presents an interesting opportunity for investors comfortable with risk.