German tax proposals impact Bwin.Party

By Graeme Dickson
Updated: 12:33 EDT, 13 April 2011

The FTSE 100 dropped 77 points or 1.2 per cent since last Wednesday to close yesterday at 5964, of which almost all of the fall came yesterday after the IMF (the International Monetary Fund) downgraded the US and the UK's growth prospects for 2011.

On Thursday, the blue chip index slipped 34 points to 6007 with much of the fall coming later in the session after reports emerged that another earthquake was endured by Japan.

Additionally, the European Central Banks increased interest rates by 0.25 per cent to 1.25 per cent, the first time since the advent of the global financial crisis. Despite this, the Bank of England kept rates on hold at 0.5 per cent.

The FTSE had a decent jolt to the system on Friday, up 48 points to 6055 on partial relief that there was no serious damage following yesterday's tremors in Japan, while higher commodity prices, particularly in gold and copper, led the miners in London to a strong close.

On Monday, the FTSE hardly changed with just a two point fall to 6053 after more tremors were felt in North-East Japan.

Yesterday however, there were no doubt tremors in some people's stomachs as the FTSE plunged 89 points to 5964 after the IMF lowered the US growth rate by 0.2 per cent to forecast a rise of 2.8 per cent and the UK growth rate lowered by 0.3 per cent to an estimated rise of 1.7 per cent.

The FTSE has experienced an incredible run, soaking up all the bad news from Portugal, Ireland, Japan and the Middle East, rallying 8.1 per cent from the lows recorded in March to the recent peak of 6055 last week.

We should expect some consolidation around 5900 to 6100, albeit we are now at the beginning of the first quarter earnings season in the US which will likely break this small trading range positively, or negatively depending on the general results and outlooks of the large public listed firms over there.

Online betting: Bwin could be impacted by German tax

Big mover: How you can profit

One of the worst performing stocks in the FTSE 350 over the last week came from online gaming company Bwin.Party Digital Entertainment (BPTY), quite possibly the most elongated names the London Stock Exchange has seen in recent years.

The shares fell 18.33 per cent since last Wednesday to close at 139.5p following new tax proposals in Germany.

Bwin.Party is a result of a recent merger between Bwin of Austria and PartyGaming. The combined entity slumped to its lowest level in almost two and a half years after Germany suggested placing a 'turnover tax' of 16.7 per cent.

This means that if a punter puts a bet of £10 and wins £90, Bwin.Party has to pay 16.7 per cent tax on £100.

It is argued that Bwin.Party earns 23 per cent of its revenues in Germany, so this tax hike could be devastating to its business there.

Currently the stock trades on 11.2 times forecast 2011 earnings, but with only 6 out of 12 analysts revising their estimates, I wonder how many more are to follow with downgrades, especially if the rest of Europe starts to follow the German example. Avoid.

Keep an eye on…

Home Retail (HOME) which is scheduled to release its preliminary results next Wednesday 20 April.

The company, which owns Argos and Homebase, issued a profits warning on 10 March guiding the market that profits will be in the lower than forecast range of £250-£255 million.

The company blamed pressures on consumer spending behind the slump in profits. The British Retail Consortium figures yesterday of a 1.9 per cent fall in sales during March compared to last year, the biggest fall since records began 16 years ago, is unlikely to do Home Retail any favours as investors weigh up their options on the stock.

That said the company yields seven per cent dividend, is in a strong financial position with no net debt and has recently seen shrewd investor buying in the form of private equity outfit Madison Dearborn, which now owns over five per cent of Home Retail.

This is not a stock I would like to own a geared long position overnight going into the results, but if the company maintains its dividend yet experiences a strong fall in its share price, then this might give the opportunity to pick stock up on the cheap.

Highlights from the FTSE 350 over the last week include:

• Nickel Miner Talvivaara (TALV), slumped 6.9 per cent to 540p last Thursday after it lowered production guidance.

• On Friday, oil services company Lamprell (LAM) jumped 5.69 per cent to 360.3p after its $332 million (£204 million) bid for UAE based Maritime Industrial Services was well received.

• Sports Direct (SPD) added 5.46 per cent to 193.2p ahead of a trading statement scheduled for 20 April.

• It was a bad start to the week for credit card insurer CPP (CPP) after it fell 14 per cent to 129p after Barclaycard suspended the use of its facility whilst it reviewed the service.

• Telecom and network provider Colt Group (CLT) rose 3.84 per cent to 154p on a read-across from Level 3's offer for Global Crossing at £1.8 billion.

• Yesterday Ferrexpo (FXPO), the iron ore miner, fell 6.93 per cent to 442.1p after UBS downgraded the stock to neutral.

• However, yesterday's IMF downgrade to US and UK growth came at the expense of a falling oil price which turned out to be good news for cruise operator Carnival (CCL), a big consumer of the black liquid, rising 4.65 per cent to 2467p.