Growth in UK Internet Gambling Shares Likely to "Disappoint" Says Morgan Stanley

Morgan Stanley downgrades Ladbrokes, William Hill

Ladbrokes Plc (LAD LN) fell 8 pence, or 2 percent, to 393.5 pence Monday while William Hill Plc (WMH LN) lost 12 pence, or 2 percent, to 589.5. Morgan Stanley downgraded Ladbrokes's shares to ``underweight'' from ``equal-weight'' and lowered its recommendation for William Hill to ``equal-weight'' from ``overweight.''

Growth at U.K. bookmakers is ``likely to disappoint,'' Morgan Stanley analysts wrote in a note to investors.

Dublin-based Paddy Power is started as 'underweight' with €24 target.

Just last week, Gambling911.com reported that Morgan Stanley was rumored to be placing 9 million shares in British bookmaker Ladbrokes.

Morgan Stanley was not immediately available to comment and no further details of the placing were immediately available at that time.

Ladbrokes plc (LSE: LAD) is based in Rayners Lane in Harrow, London. It is a member of the FTSE 250 Index, having been relegated from the elite FTSE 100 Index in June 2006. Until 23 February 2006, Ladbrokes owned a major hotel business, including the Hilton hotel brand outside the United States. From 14 May 1999 to 23 February 2006 it was known as Hilton Group plc.

Overall the largest betting company in the UK and largest retail bookmaker in the world, Ladbrokes owns over 2,200 retail betting shops divided between the UK, Ireland and Belgium. It also operates several online gambling websites offering sportsbook, poker, casino, games, bingo and backgammon.

Immediately following the announcement Wednesday, shares in Ladbrokes were down 1.6 percent at 408 pence, figuring among the main losers in the FTSE mid cap index <.FTMC>, which was up 1 percent.

The placing represent about 1.4 percent of Ladbrokes' shares in issue, according to Reuters data.

Morgan Stanley Securities held big positions in BetOnSports (as did Goldman Sachs) prior to BetonSports closing down last year. Morgan Stanley had one of the biggest stakes - worth around $25.6 million - but the company said that the position was held on behalf of one large investor, whose identity it withheld.

It wasn't just the big name bookmakers in Great Britain which lost altitude Monday.  British Airways also received bad news on Monday as ABN Amro dropped its view on the shares to 'sell' from 'hold', with price target cut to 360p from 410p.

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Christopher Costigan, Gambling911.com Publisher

Originally published November 5, 2007 9:42 am ET