Remarkable growth, remarkable cash generation, remarkable Q2 key performance indicators (KPIs) issued today by PartyGaming plc and all in a remarkably bombed out sector. Investors looking for bargains are attracted to such situations.
The bomb, the threat of US anti-gaming legislation, appears more Vanuatu than Iran-like. Not only is there too little legislative time in the Senate to read and pass the proposed bill but said bill was already being watered down. This speaks to the question is a huge gambling nation like the United States really going to put a moral "anti-scourge" law on the books?
Nonetheless, PartyGaming take the threat seriously enough to hype its duck-and-dive move of geographic diversification in this morning's KPI release. An unfortunate problem with this strategy is that half the online gaming industry's growth comes from the US. Is it conceivable that this can be seamlessly be replaced by European and South American punters as the Group suggests?
Perhaps, and the large increase (also announced today) of the group's revolving net debt facility to £500m from £200m will doubtless be key in driving this diversification objective. Last time PartyGaming spoke of the £200m facility (full year 2005 accounts) it was undrawn. Today's announcement leaves little doubt that the group has already begun to leverage up its bet aggressively.
However, similarly aggressive has been insider selling in June and July: and amongst the folders are the founders, the Chairman, the Chief Executive, the Finance Director, and the General Counsel / Company Secretary (with these last two now having nil equity interest).
Which compels consideration of just how much faith management and key personnel have in their cards on this gamble.