Market Report: Chips are down for online gaming groups

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The Independent Online

It might seem a bit like shutting the stable door after the horse has bolted, in this case most of the way to the knacker's yard, but big downgrades to Sportingbet and PartyGaming from the Swiss broker UBS still managed to flush sellers out of the online gambling sector.

The US government ratified anti-gaming legislation on Friday, and both companies have announced an exit from the US market - Sportingbet by selling its US interests and PartyGaming by closing them down. As a result, UBS slashed its forecasts, reducing earnings estimates for Sportingbet by 90 per cent.

The broker cut its price target for Sportingbet from 200p to 45p and for PartyGaming from 75p to 26p.

The broker also pointed out that several privately owned online gambling companies have kept their US interests open, meaning that if there is any relaxation of the law then both companies will have a mountain to climb to restart US operations. PartyGaming fell 4.5p to close at 30p while Sportingbet fell 12.25p to 46.25p.

The food retail sector has been hot in recent sessions, with record results from Tesco and J Sainsbury. The talk in the market yesterday was that the US private-equity group Kohlberg Kravis Roberts is considering a bid for Morrison Supermarkets, the UK's fourth-largest player. Morrison shares have performed wonders in the past 12 months, climbing 57 per cent as the post-Safeway acquisition problems ease.

Traders said the major shareholder Brandes Investment Management may be open to offers, and with huge sums of cash still burning holes in private-equity pockets a bid is possible. Shares in Morrison added 7.5p to 258.5p, an all-time high, while Tesco closed unchanged at 381p and Sainsbury's closed 1.25p better at 387.5p.

The mining group Lonmin was also back on the takeover radar, although traders said commodity stocks have rallied in the past week. The precious metals group was involved in short-lived bid talks in February, thought to be with its rival Gold Fields, which came to nothing. Its shares have more than recovered since then, and surged 110p to 2,813p yesterday. Elsewhere in the mining sector, Rio Tinto firmed 30p to 2,767p and BHP Billiton added 11p to 1,009p.

Mining and oil issues helped drive the FTSE 100 to new highs, closing 15.1 better at 6172.4, despite grim news from the nuclear power plant operator British Energy.

The broker Collins Stewart will have spent most of the afternoon kicking itself - it published a "buy" recommendation on British Energy, with a 629p target, minutes before the company told the market it would shut down two more reactors to mend cracked pipes. Its shares tanked to close at 427p, down 133.5p, and look likely to drop out of the blue-chip index. Rival Drax Group was the main beneficiary of British Energy's woes, climbing 35.5p to 813.5p as investors switched between the two stocks.

Wolfson Microelectronics was pushed 22.5p better before results next week and, perhaps more importantly, third-quarter numbers from Apple, due on Wednesday.

A two-track market seems to be developing in the debt companies, where corporate debt management stocks are outperforming personal debt. Debtmatters, 13p worse at 282p, DebtFreeDirect Group, off 28p to 545p and Debts.co.uk, 11p lower at 191.5p continued to attract heavy selling pressure. Debtmatters was forced into issuing a statement saying that it does not know of any reason for the recent share price fall. Meanwhile, Begbies Traynor, an AIM-listed corporate debt group, climbed 2p to 163.5p.

Among small caps, Global Marine Engineering, the oil services group, is trading a sub-6 multiple, according to traders, and some believe there is more good news in the pipeline. Its shares climbed 1p to 23.25p, and with several positive announcements having gone under the radar, its shares are showing signs of life.

Brinkley Mining added 1.5p to close at 20.25p, a 32 per cent rise from the low of 15.5p. That said, its shares listed at 50p in June, and market makers have tried to drum up some buying interest without much luck.

Finally, traders will be on the lookout for Pangea DiamondFields as it makes it Aim debut today. The company, with mining operations in South Africa, Angola, Congo and the Central African Republic, raised £15.9m of new funds via a placing by broker Ambrian Partners at 60p. According to dealers, demand for its shares was good, and investors hope for a decent premium when trading begins.

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