MORE than £2 billion was wiped off the market value of PartyGaming yesterday after the recently floated internet poker company accompanied its maiden financial results with a warning over slowing growth rates.

The announcement sent shockwaves through the industry, knocking hundreds of millions of pounds off other internet gambling stocks, and cast a shadow over the raft of initial public offerings (IPOs) planned in coming months.

The timing is especially poor for 888 Holdings, which is due to launch its pre-float marketing push and announce its indicative price range on September 15. It insisted the IPO remained “totally on track”, pointing out that it derived a greater proportion of its business from internet casinos rather than poker, with far fewer of its punters coming from the US market.

However, a source close to the IPO conceded that the mooted valuation of £700 million to £800 million for 888 now looked “optimistic”.

Some analysts also questioned whether Sportingbet’s £790 million bid for Empire Online might be at risk. Neither would comment although Sportingbet, responding to the 16 per cent fall in its shares, said it “continues to trade in line with expectations across all product lines”.

PartyGaming’s half-year results were actually ahead of market forecasts, showing a 70 per cent jump in underlying earnings (ebitda) to $257.7 million (£140 million) excluding share options and IPO-related costs of $195.4 million.

It insisted that full-year ebitda would meet expectations but warned investors that player- retention rates and yields were declining “at rates that are greater than anticipated”.

The news sent its shares crashing by 51¾p to 105p, a fall of 33 per cent, to below its June flotation price of 116p. Its market value fell to £4.2 billion, from £6.27 billion, although that is still high enough to ensure its entry into the FTSE 100 index on September 19.

Richard Segal, the chief executive, said: “The share price reaction has taken us a little bit by surprise. We thought there would be a bit of an adverse reaction but the size of it has caught us on the hop.”

He said that a slowdown in the phenomenal growth rates of recent years had been well flagged during the IPO, adding: “The new news is that in the last six to eight weeks we have seen growth rates moderate rather faster than anticipated.”

The share price fall was exacerbated by the fact that PartyGaming’s stock is widely held through contracts for difference (CFDs). With the stock down heavily, investors faced “margin calls” from CFD providers, forcing them to sell the stock or place increased collateral against their positions.

The proprietary trading desks of Deutsche Bank and Cantor Fitzgerald are thought to have been especially badly hit. Institutional investors that bought shares in the IPO all declined to comment. Many analysts cited the share collapse as a buying opportunity. Paul Leyland, at Seymour Pierce, said: “We believe the market is sensible to correct some of the froth that has surrounded the sector. However, the detail is nowhere near as bad as the headline.”

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