Market Report: PartyGaming rises as market turns south

The online gambling group PartyGaming firmed up last night, attracting interest on the view that the run of weakness caused by co-founder Anurag Dikshit's move to offload the majority of his stake had gone too far.

KBC Peel Hunt said that while the shares have suffered in recent sessions, the outlook for the group "has not deteriorated". In fact, the picture is quite the opposite with the company standing to benefit from recent developments in Germany, where the state of Schleswig-Holstein has announced that it no longer wants to be part of the country's Interstate Treaty on Gambling, which outlaws online gaming.

"The treaty needs to be unanimously ratified in January 2012 if it is to continue," the broker said, pointing out that, in 2008, just under 20 per cent of PartyGaming's net revenues were derived from Germany. Developments on the other side of the Atlantic, where the US Joint Committee on Taxation recently said that legalising online gaming could yield up to $42bn in tax revenues, also bodes well, KBC added, upping its stance on the stock, which closed 4p higher, at 228.9p, to "buy" from "hold".

Overall, the FTSE 100 gave way, easing by 93.17 points, to 5,044.55, with early losses on Wall Street weighing on sentiment in London. The FTSE 250 was also weak, losing 76.64 points, to 8,885.77. With the US GDP numbers out of the way, traders turned their attention to the upcoming Bank of England Monetary Policy Committee meeting. Taking their cue from the unexpectedly weak UK GDP figures for the third quarter, many in the City now expect the Bank to ramp up its quantitative easing programme, with Howard Archer, the chief UK economist at forecasters IHS Global Insight, saying that the odds favour a £25bn rise to £200bn.

Royal Bank of Scotland was the subject of profit-taking, easing by 1.45p, to 41.92p. Lloyds Banking Group proved more resilient, edging up by 1.03p, to 87.03p, after both Credit Suisse and Exane BNP Paribas moved the stock to "neutral" from "underperform". Credit Suisse analyst Jonathan Pierce said that while the stock was "far from cheap", it was "no longer expensive". Goldman Sachs also weighed in, welcoming the positive messages in the group's recent announcement regarding alternatives to the Government's asset protection scheme.

"First, and most importantly, it suggests that the risk of overly punitive restructuring measures from the EC is limited," Goldman said. "Second, Lloyds' specific mention of contingent capital and of an exchange of 'certain existing group capital securities' suggests that contingent capital will play a part in a potential recapitalisation. Whilst there are still too many unknowns to draw any firm conclusions, we believe that if contingent capital is issued as a replacement of current hybrid capital, the earnings impact would be small."

Elsewhere, miners were hit by traders moving to secure profits from Thursday's rally, and by weaker oil and metals prices. Kazakhmys, the target price for which was scaled back to 1,066p, from 1,091p, at Deutsche Bank, was among the weakest, declining by more than eight per cent, or 97p, to 1,089p. Xstrata fell to 882.5p, down almost seven per cent, or 64.5p. The copper miner Antofagasta was 50p behind at 771.5p, and Lonmin, the platinum producer, lost 101p, to 1,463p.

Further afield, the Lloyd's of London insurers Amlin, down 7.5p at 353.9p, and Brit Insurance, down 1.3p at 208.3p, were in focus after Morgan Stanley initiated coverage on the two, setting an "overweight" rating on the former and an "underweight" one on the latter. The broker said it saw a "significant risk to the downside" in Brit, adding that, in its view, the stock was unlikely to re-rate. "We believe the market has yet to recognise that Brit has not fully incorporated the lower interest rate [environment] in its technical pricing models," Morgan Stanley explained.

The power provider Chloride, which is due to report half-yearly results next week, was broadly unchanged at 161.5p, down 0.9p, after UBS upped its stance to "neutral" from "sell", with a revised 160p target price, compared with 130p previously. The broker said comments from the company's peers suggested that negative catalysts were diminishing, and while much of the improvement seemed to be confined to smaller systems and US markets, it was eventually likely to feed through to Chloride's core European and large systems markets.

UBS did warn on the prospects of deal activity, however. "A supportive factor behind Chloride's investment case has been the susceptibility to [a] takeover," the broker said, highlighting the state of its peers. "We now see limited mergers & acquisitions risk over the next 18 months, given that Emerson has purchased Avocent, Eaton remains highly leveraged and Schneider may face regulatory hurdles."

House builders were generally weak, with investors moving out on the back of latest housing market report from the Nationwide, which revealed that while prices had registered the first annual advance in 19 months, the rate of growth had moderated in October. Bellway was down 23.5p, to 731p, while Bovis Homes was off 6p, at 411.9p.