Shares in Sportingbet, the online gaming company, have slipped 1p to 54p as it sold its loss-making Italian business.
The company said liberalisation of the country's online gaming regulation did not provide the benefits it had expected, with the Italian government allowing increased competition. It said it would take a charge of £7.1m to cover the disposal, with the business sold to the local management team for a nominal sum. It also said it was confident of hitting its full year forecasts, despite all this. Analysts at Collins Stewart issued a hold note on the business. They said:
"Sportingbet blames the failure to gain scale on product restrictions, which is reasonable given Sportingbet's key leverage point is excellent bookmaking, a skill which is difficult to bring to bear in the tightly regulated Italian market.
"However, our thesis on driving sustainable, high quality growth rests upon accepting domestic restrictions in return for legal visibility (particularly in a market like Italy, which is gradually becoming more permissive). We would see Sportingbet's decision as sensible in terms of managing profit, but perhaps questioning the company's ability to drive earnings quality in an increasingly regulating environment.
"Since we believe Italy is a useful blue print for wider European nation-state regulation, we see this as highlighting the negative risks for all the major offshore operators.
"Sportingbet's underlying trading is in line after a solid start to the seasonally quiet fourth quarter period. There should therefore be no surprises until October (full year results) unless the company settles with the US Department of Justice. Notwithstanding this possibility, we see 10.4 times earnings as fully valuing an offshore business model with built-in regulatory risk and rapidly slowing growth: top-line has been broadly flat for the last six quarters, while we see few catalysts to drive significant growth into 2010."
Gaming shares were under the cosh yesterday after a warning from Playtech, which supplies software to the industry.
Today Playtech fell another 2.25p to 340.75p, although William Hill - which has a joint venture will the company - has improved 1.25p to 193p.
