No Signs the Party Is Over Just Yet

(PRWEB) September 10, 2005 -- GBGC have incorporated the H1 results of Cryptologic (cry.to/cry.l), Empire Online (eol.l) and Ladbrokes (hg.l) and PartyGaming with PokerPulse data and GBGC’s previous market forecasts which were produced in association with Dresdner Kleinwort Wasserstein.

The market as a whole has continued to see significant growth; however, it is slightly behind the March 2005 forecast and consequently GBGC have revised its 2005 forecast for the market slightly downward by just 1.5%. This takes it to US$2.83bn as opposed to the US$2.87bn which was concluded following the release of PokerPulse’s Q1 numbers. Furthermore GBGC’s revised forecasts suggest that despite expected slowdown of the growth in the online poker market it will be worth US$5.44bn by 2008 which is just 7.0% south of the previous number of US$5.86bn.

On the basis of what operators have told GBGC is sure that there is still at least 12 months of clear market growth before there is any suggestion of a land-grab in online poker. GBGC’s market forecasts have always predicted that there would be a moderation in growth going forward. The original GBGC/Dresdner Kleinwort Wasserstein forecasts showed an increase of 95% during 2005 as opposed to the 342% achieved during 2004. GBGC’s revised figures forecast an increase of 102% for 2005 and a CAGR for the market of 40% for the between 2004 and 2008 as opposed to the previous figure of 43%.

THE COMPANY

It is important to note that PartyGaming’s revenue was expected to slow during Q2 due to the seasonality of online poker. Since then it is not surprising that expected upturn in growth has been a little late in coming due to the company’s exposure to the US market and more importantly increased competition in the form of affiliate rake back schemes, which are proving important in a market whose land-based gambling market has always extensively used ‘comps’ and customer loyalty programmes rather than direct price competition. A particularly hot summer in the US (July was the 2nd hottest on record) and a later / prolonged World Series of Poker (WSOP) (the US TV coverage of which has only recently commenced) have both had an impact. The company’s share of the online poker market was always expected to fall in what is a fiercely competitive market as smaller players spend what could prove to be unsustainable amounts on marketing.

Dresdner Kleinwort Wasserstein, the company’s financial advisors initiated coverage on the company on 9 August in that note based on forecasts for H1 revenues of US$425.5m, EBITA of US$244.0m and EBIT after exceptionals of US$191.5m placed a buy on the company and a target price of 210p at a point when it was valued at 170p. The results announced yesterday were 2.8% higher, 5.6% higher and just 0.4% behind respectively of the Dresdner Kleinwort Wasserstein forecasts. However, future earnings for 2006 and 2007 were reduced by 19% and 28% respectively with the target price being reined in to150p.

POKERPULSE

It has been widely acknowledged that there have been some problems with PokerPulse data during 2005, particularly in Q2 as the many of the leading companies have upgraded their software. In fact based on PokerPulse data alone GBGC calculated that the online poker market would grow to US$2.74bn during 2005 and US$5.28bn during 2008 which would have been 4.5% and 9.8% less than the original GBGC/Dresdner Kleinwort Wasserstein forecasts and represent a CAGR of 39% for this period.

PTO

GBGC COMMENT

Simon Holliday, partner at GBGC, commented, ‘the market has clearly over-reacted, this business is no weaker today than it has been at any point since its IPO 10 weeks ago. Going forward GBGC continue to see excellent growth prospects not in online poker but across the entire online gambling space. New geographic markets, new products, scale, the new affiliates programme(the details of which are to be announced in Las Vegas next week), new channels and the cross-sell opportunities to be gained from the integrated Party Platform make this one of the most exciting gambling companies in history. Indeed until this morning could boast to have the largest gambling valuation by market cap seeing as Harrah’s Entertainment (het), Las Vegas Sands (LVS) and MGM Mirage (mgm) all rely on lodging and entertainment for much of their valuations.’

Press Release - 2005-09-15 03:09:52