Market Report: Games makers rocked by Electronic Arts woes

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The Independent Online

The next generation of computer games consoles from Sony and Microsoft are due later this year and no one is awaiting their launch so keenly as the makers of the computer games that will be played on them.

Shares in the UK's mid-sized games publishers slid yesterday after the granddaddy of the industry, Electronic Arts, came out with its second profit warning in six weeks. It blamed a shortage of the current generation of consoles (which conspiracy theorists believe has been deliberately orchestrated to clear the decks for new hardware) and decisions by gamers to wait for the new consoles before splashing out on new software. And all the while, games prices have been squeezed lower.

In the UK, that knocked shares in SCi Entertainment and its erstwhile rival publisher Eidos, which it is taking over, and also the specialist retailer Game Group, whose shares were a ha'penny lower at 80p. Eidos fell 9.25p to 48.75p, while SCi tumbled 51.5p to 298.5p.

Eidos and SCi have been linked in the past with Robert Bonnier, the stock market speculator and sometime head of Scoot.com, who is believed to have built up substantial positions via contracts for difference.

The ubiquity of CFDs is one of the reasons for the growing volatility of mid-cap and small-cap shares. A CFD broker in effect loans a punter up to ten times his cash investment to play the stock market, but when a position goes against him, it goes wrong ten times as badly as if he had just bought the shares. The word yesterday was that one CFD punter was losing so much on SCi and Eidos - and three other stocks - that he was forced to sell out, exacerbating the share price falls.

The other stocks said to be involved were the offices company Regus and the software house The Innovation Group - where Mr Bonnier also has stakes and whose shares were off 13p at 97p and 10.25p at 38.25p, respectively - and finally Regal Petroleum.

The continuing share price plunge at Regal is particularly sickening for the investors - mainly hedge funds but Henderson is also among them - who bought shares in a £45m placing at 390p per share just last Monday.

There are gathering doubts over the prospects for finding oil in commercial quantities at its long-hyped Greek exploration project, where the first results were not promising. With the shares down 54p at 253.5p, they are sitting on a paper loss of 35 per cent after just seven trading sessions.

So mid- and small-cap stocks did notably badly yesterday, even though the FTSE 100 ended up 21.3 points at 4,882.5, a late burst of economic optimism brightening a previously directionless day. The US service sector expanded faster than expected in April, it turned out.

In the UK, retailers were inevitably the focus of much of the trading, after sales updates from HMV (down 9.25p at 218p) and French Connection (up 7.25p to 255p) and a profit warning from Matalan (down 9.25p at 183.75p). Brokers continued readjusting their recommendations in the light of this latest evidence of slower consumer spending. Numis marked down 2006 profit forecasts for House of Fraser, 0.75p cheaper at 101p.

Meanwhile, Lehman Brothers, the giant US investment bank, decided to steer its clients out of UK retail stocks almost entirely. "We prefer soft-line retailers in clothing or health and beauty over hard-lines such as electricals and DIY, low ticket spend over high ticket, and European stocks over UK," it said. Lehman abandoned positive recommendations on Boots (8.5p weaker at 591.5p) and Next (off 28p at 1,475p) and turned outright negative on Kingfisher, the owner of B&Q, which fell 0.75p to 253p, and on Kesa Electricals, the owner of Comet, whose shares dipped 3p to 262p. For the record, Lehman's strongest positive recommendation is Marks & Spencer, but it still fell 5.25p to 338.25p amid the general gloom.

And if consumer confidence is ebbing away, what of the biggest purchase most people make, a house? Investors decided it would be safest to trim their holdings in the housebuilding sector, too, particularly after a survey showed builders trimming back their activity in the light of weaker demand from buyers. Shares in Persimmon, off 26.5p at 675p, and Wilson Bowden, 40p lower at 1,045p, were the worst hit.

Bid speculation is back on at Lastminute.com, the online travel agent. Its shares were up 1.75p to 108p in heavy buying. Eighteen months ago, the stock was trading at more than 300p amid gossip of a takeover approach from Barry Diller's InterActiveCorp, the owner of Expedia. Lastminute's interim results are due next Wednesday, the first under a new finance director charged with getting a grip on the group's costs.

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