PARTYGAMING failed to join a rebound in the FTSE 100 after UBS slashed its price target by 44 per cent and branded the poker operator’s business model as “flawed” in the long term.

In a heavyweight dissection of the dynamics of online poker, Julian Easthope, analyst, concludes that the company’s revenues are likely to decline materially in the future. His case rests on the belief that a relatively small number of skilled players — so-called “sharks” who make a living from the game — generate the majority of PartyGaming’s revenue. At its float it stated that 10 per cent of customers generate 70 per cent of its income, a figure that now stands at 77 per cent. These “sharks” feed on the “fish”, newly signed-up players with limited experience who lose money and become bored with the game.

Mr Easthope contends that growth in online poker revenues requires sustained rises in new customer introduction to retain the good players that drive revenues. But, as demonstrated by last year’s decision by PartyGaming to exclude “skins” — companies such as Empire Online that direct gambling traffic to its website — loyalty is not a feature of its customer base: half of them swiftly left.

With advertising restrictions growing, UBS claims customer acquisition will get more difficult. So although short-term trading is healthy, Mr Easthope reckons PartyGaming is within a year of seeing lower growth in sign-ups, leaving it exposed to a material revenue reduction as “sharks” seek easy pickings elsewhere. With UBS moving from “neutral” to “reduce” and dropping its price target from 135p to 75p — a 27 per cent discount to yesterday’s open — the shares fell 2p at 101p.

The FTSE 100 put on 34.4 points to 5,866.2. A drop in Brent crude to $62.70, a six-month low, meant that airline stocks enjoyed the best gains across European bourses. British Airways rallied 17p to 437¾p, also helped by a 500p target from Collins Stewart.

After last week’s suggestion from UBS that Corus Group is likely to source slab steel from a lower-cost producer, the Anglo-Dutch company rose 10p to 369¾p as Morgan Stanley moved from “equal-weight” to “overweight” with a raised 490p target, citing its increased confidence that a “value enhancing deal” will occur in the next few months. One scenario floated by the broker is a merger with a Russian slab exporter.

Pearson, owner of the Financial Times, put on 11p to 742p, despite Tuesday’s lowered earnings guidance from Dow Jones, publisher of The Wall Street Journal, which complained of weak advertising trends. But Credit Suisse moved Pearson from “neutral” to “outperform” with a raised 860p target on the prospect of upgrades to earnings forecasts.

Enterprise Inns advanced 20p to £10.70 as Merrill Lynch raised its target from £10.30 to £12.40 ahead of Tuesday’s trading update, suggesting the pub operator — which it expects to return £1.3 billion to shareholders over the next four years — may increase its dividend to supplement an improved share buyback programme.

• NEW YORK: Wall Street closed higher, holding on to its gains after the Federal Reserve kept short-term interest rates steady, as expected, but left the door open to additional rate rises. The Dow Jones industrial average finished the day 72.30 points up at 11,613.20.

Explore Markets

• United States

• Europe

• Japan

• China

• Russia

• The Gulf

• India

• Africa

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive