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An analyst's view of "cack-handed" management actions and the impact on share price
The Daily Telegraph this week pointed out that Party Gaming does not have much to celebrate a year on from its GBP 5 billion market debut, with shares that have barely budged from their 116p float price, and a stock that has lagged the FTSE100 index by almost 10 percent, while its closest listed rival, Sportingbet, has outperformed the index by the same amount.
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In an insightful op-ed article, the newspaper asks the rhetorical question: "Why have PartyGaming's shares fizzled?" and explains that ill-considered talk and actions by management may be at the root of its problems in the recent past.
The fall in popularity is not because poker is a risky business. That was well priced in from the outset. Nor is there much wrong with the operational side of the business, which is doing better than forecast. And fears that online gaming will be outlawed in the US, where PartyGaming gets the bulk of its revenues, still look wide of the mark, observes the article.
The real reason, the Telegraph writer claims, is that PartyGaming's "...cack-handed management spooked investors with a series of blunders. Richard Segal, the chief executive, alarmed the market just three months after the float by suggesting that growth was slowing. That wiped a third off the share price. Then, six months later, Segal suddenly quit. To cap it all, two of the founders decided to leave the board and sold a large tranche of shares."
Pointing out that gaming stocks are volatile at the best of times, the writer suggests that perceived management chaos made PartyGaming even more so. The sale of such a large stake by the founders was a particular problem for PartyGaming, given its small free float - and the fact that few institutions are willing to hold big stakes.
Ending on a positive note, the Telegraph piece underlines the fact that PartyGaming still has plenty of chips on the table, and concludes that ".....if only it can reassure the market it is a grown-up company. It is the market leader in a sector forecast to enjoy a decade of 10 percent [annual] growth. And online gaming still makes up only around 5 per cent of the world's gambling market.
"The arrival of a new chief executive [Mitch Garber] is a start. If he can deliver a year without nasty surprises, PartyGaming's second birthday may be a happier affair."
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