PartyGaming's Bluff

PartyGaming's IPO – at Moneyweek.co.uk - the best of the week's international financial media.

That PartyGaming was ever worth $10.5bn "always looked like a bluff", says John Foley on Breakingviews.com. Now that bluff has been called, as the online poker company cut its valuation by 18%.  This means the company is now worth $8.6bn, and shareholders have cut the stake up for grabs by 1% to 22%.

So how has PartyGaming become quite so successful? Through a mixture of "skill and luck" just like its game, says Lex in the FT. It attracted much attention following a $1m tournament three years ago and since then the market has taken off. But despite this, there are reasons to be wary about the stock when it finally lists in London. For one, there is much uncertainty regarding the legal status of gambling on the internet in America where PartyGaming gets some 90% of its revenues.

Moreover, it may have cut its valuation, but it still "raised some eyebrows", says Lex. The 20% discount to rival Sportingbet on a price-earnings basis is high for a standard offering discount although, as PartyGaming is not as diversified as Sportingbet, perhaps the new level is more realistic. At a forecast p/e for 2006 of 13 times, the group will also trade at 10% discount to its blue chip peers. But despite this, it is  still a significant premium to gaming outfit Empire Online, says Foley on Breakingviews.com. The group floated yesterday on a multiple of less than 10 times 2006 earnings. So a warning to investors: you may want to see what's in PartyGaming's prospectus to see whether it "still has any aces up its sleeve".

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