INVESTORS CAN FIND REAL, UNDER-VALUED GEMS IN ONLINE GAMBLING

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Investment expert sounds a positive note on some industry stocks

Investment manager Rupert Morell believes that online gambling stocks are undervalued following the controversy over online gambling last year, when the US Congress outlawed credit-card and money-transfer companies from accepting payments to gambling websites.

And he intends to do something about it, according to Citywire which quoits the head of Premier's GBP 13 million European Growth Fund as saying: "No-one is in this sector any more, since everyone said 'that's it for on-line gambling' last October. But there are real under-valued gems here."

The 13 million pound European Growth Fund has enjoyed a strong performance since Morrell took over in June 2005, but has only matched the average manager in the IMA Europe ex-UK sector over the past year due to poor market timing and stock ideas, especially in Eastern Europe.

He intends to improve the Fund's position by getting into Austrian company Bwin Interactive and Swedish on-line gaming company Unibet. Morrell told Citywire that his choices have no exposure to the US and have impressive valuations following the global sell-off. Although Unibet has one million active customers across Europe, it is trading on a price-earnings ratio of nine. It also has a 7 percent dividend yield.

The gaming stocks fit into the large 43.77 percent 'other' weighting of the fund, which is made up of an eclectic range of stocks favoured by Morrell such as Semapa, a Portuguese cement producer that has a 68 percent stake in pulp and paper manufacturer Portugal. He also has several alternative energy stocks.

All of the stocks are in 'old' Europe following what Morrell terms a ‘poorly timed' move into Eastern Europe last year, one of the main detractors from his performance in 2006.

He bought Hungarian bank OTP following the drop in markets in the spring of last year as he expected emerging markets to recover quickly from the correction. The stock took too long to recover however and he had to sell as he must cut any position that loses more than 15 percent under his mandate. OTP bounced back 50 percent shortly after he had sold it later in the year.

He said: "The experience showed me that my skill set is in mainland Europe. That's where I have stayed since and have found some stocks like Austrian Airlines have done well and actually turned our performance around in the second half of the year."

Morell took over in 2005, having previously run hedge funds through his own company, and has introduced more aggressive hedge fund style techniques to the fund, which has a two-tier investment strategy: 70 percent consists of a core basket of ideas and 30 percent is made up of a short-term trading element that provides the majority of the fund's alpha.