Broker snap: bwin a good match for Party

Scale matters in online gaming which is why Peel Hunt is a fan of Partygaming's proposed merger with Austrian rival Bwin, describing it as potentially 'a match made in heaven.' 'In online gaming, scale matters. However, not only will a bwin/PartyGaming merger bring scale - it creates a balanced product portfolio and the potential for substantial cost savings beyond those initially identified by management. With the US situation also looking more promising, the potential upside for PartyGaming shareholders looks considerable,' suggests analyst Nick Batram. The broker rates the shares a 'buy' and has its price target under review following Thursday's merger announcement. 'After much rumour and on-off speculation, bwin and PartyGaming have at last announced their engagement, with the marriage due to take place early next year. On paper, this looks like a match made in heaven, but beautiful couples do not always make the best marriages. Joint- CEOs and differing cultures are just some of the challenges. That said, it is hard not to get excited by the most significant deal in the online industry to date,' Batram enthused. 'If there is a hint of caution, beyond execution risk, it is that the percentage of revenues generated from unregulated markets will increase significantly from a PartyGaming perspective,' the broker continued. Batram thinks that Partygaming's estimate of EUR55m in potential synergies, at less than 10% of costs, could be conservative and suggests that the final figure could be at least EUR75m. 'A counter offer for either company is unlikely, given the potential synergy benefits and compelling proposition of the enlarged group. The merger was also announced a day after Barney Frank's proposed online gaming bill was voted through the House Financial Services Committee; management was keen to highlight the view that they foresaw no impediment to the enlarged group entering the US, should the market open up. The shares may drift back a bit following yesterday's excitement, but as appreciation of the scale of the deal grows, the potential for a re-rating increases. We therefore remain buyers,' Peel Hunt concluded.