Market Report: Dealers bet on PartyGaming despite US fears

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The Independent Online

Buying shares in online gambling businesses is proving to be just as uncertain an investment as a punt at Walthamstow dog track.

Despite its FTSE 100 status, PartyGaming, the largest of the quoted online-gambling businesses, nosedived soon after being placed on the market, at just shy of 130p in May last year to a little more than 70p by October. But strong trading yesterday helped itsshares bounce back from Monday's downturn to close at 149p, a rise of 6 per cent.

At the time the company floated, many investors were put off by the fact that it was unclear whether US authorities would consider online gamblers illegal.

So far there have not been any reports of FBI raids, so perhaps it is safe to assume that buying online gamblers' shares is safe - for now. However, it is unlikely to do anything for those with faint hearts: yesterday's rise in PartyGaming followed a 5 per cent fall on Monday.

PartyGaming's rival Sportingbet also revived after aggressive profit-taking on Monday; rallying 11.5p to 409.25p. One trader said: "These are the sort of companies that could get killed by litigation in the US. No one wants to be holding these stocks if that happens, but in the meantime it is the sort of thing that you can trade in and out of. I don't expect these stocks to get any less volatile." PartyGaming reports its results on Friday

Empire Online, another online gambling stock, rallied 16 per cent to 100p after reiterating guidance to the market that it would make a profit on all of its non-poker-related platforms.

Meanwhile, shares in BSkyB fell again, this time down 3.5p to 485p, and technical traders were looking at a classic head-and-shoulders pattern from the broadcaster. Paul Kavanagh, at the broker Killik & Co, thinks the group's shares could fall further. "There is no question that the stock is now on a downward trend and it is difficult to shake the image that this is now a mature business," he said. "The real question is how sustainable the BSkyB platform is, especially when there is potential competition from Google television. All media stocks are under pressure."

Elsewhere in the FTSE 100, Compass Group was again sold heavily, down 3.5p to 230p on volume of 37.1 million, as Dresdner Kleinwort Wasserstein issued a bearish note to clients. The German broker reiterated its "sell" advice and highlighted potential risks, including pension deficits and a cut in the company's dividend.

Compass is auctioning off its roadside-catering business, SSP, and Dresdner worries it may not achieve the £1.4bn the sale is expected to bring in.

"The stock's rating looks precarious," the broker warned, "and few seem to have considered transaction costs and tax liabilities. Rising mortality assumptions could push up the net deficit, even if Compass substantially plugs the [pension] scheme with SSP proceeds."

Shares in Wolseley, the construction and building materials group,fell 30p, or 2 per cent, to 1,307p,after Goldman Sachs warned investors that the shares may have peaked. The heavyweight broker said: "We expect weakness in the US housing market leading to slower earnings growth and believe Wolseley's share price will take a breather."

British Energy is poised to return to the FTSE 100 tomorrow, replacing the soon-to-be-departed O2. As a result, tracker funds have been forced into buying its stock. BE shares were unchanged at 619p.

Among the leading fallers in the FTSE 250 was F&C Asset Management. After two days of strong gains the stock opened this morning at 214.75p, having been bid up from 185p on Friday.

The rival investment management group, Gartmore, is up for sale and some traders hope F&C will also become a target. But with Friends Provident holding a 51 per cent stake in F&C those hopes look like being dashed. Last night F&C succumbed to the inevitable bout of profit-taking - its shares tumbled 11.25p to 204.25p, down 5 per cent.

Among the small caps, Northern Recruitment rose 6.5p to 170.5p as rumours circled the market about a large short position being squeezed out. Results are due on 31 January. Shares in Meridian Petroleum more than doubled, jumping 9.63p to 17.25p, a rise of 126 per cent. The company announced that its Calvin 36-1 well at Winn Parish, Louisiana, is achieving commercial flow. It plans to get the well completed and on line as soon as possible, and the news sent its stock soaring on heavy volume of 6.43 million shares.

Traders will be looking out for activity in the small-cap intellectual-property rights group, Angle, unchanged at 91.5p, after the company appointed Collins Stewart as its adviser and broker. The broker is expected to publish an upbeat assessment of Angle's prospects in the next few days.