Market Report: Deutsche puts William Hill on its tip sheet

Deutsche said: "The core bookmaking businesses should see trading improving following a season of unfavourable results, and will also benefit from a possible tax change which should help margins in the industry." The broker was also bullish about the outlook for William Hill'se-gaming businesses. It expects this to benefit as the European market opens up.

As for William Hill's recent acquisition of Stanley Leisure's chain of bookies, Deutsche was positive about the move and forecasts it to generate greater cost savings then originally thought. Now the deal is out of the way, the German broker hopes the company will again look to returning capital to shareholders. It estimates William Hill has the capacity to give back as much as £150m and believes such a move is likely to be unveiled in the next six months.

Investors should also be bullish about the future of online gaming companies, according to Deutsche. Its favourites in this arena are PartyGaming, off 2p to 160.5p, and Sportingbet, 2.5p weaker at 360p. The broker cited a recent survey by an internet search engine which found " poker" was the most commonly searched-for word on its site after " Pamela Anderson" and "Britney Spears". "Need we say more about the popularity and potential of online gaming?" Deutsche asked. It also dismissed any talk of a "bubble" building up in the sector as "misplaced", pointing to the large profits the likes of Sporting-bet and PartyGaming generate as evidence that online gaming is no investment fad.

BetonSports, a rival of the duo, held steady at 135p despite news that Evolution had sold 23 million shares in the group on behalf of the company's founder. The shares were held in the name of Boulder Overseas which saw its stake in BetonSports fall to 15.4 per cent from 44.

In the retail sector, Matalan dropped 2p to 203p as Seymour Pierce said it was sceptical about a bid for the discount retailer from either Wal-Mart or Tesco. On Monday, shares in the group were set alight by the rumour. Yesterday, the broker downgraded Matalan to "underperform" from "hold". It sees Tesco as unlikely to be interested, although the supermarket giant is slowly opening stand-alone, non-food stores. As for Wal-Mart, Seymour Pierce believes the world's biggest retailer was once interested in buying the company but fears Matalan's largest shareholder, its chairman John Hargreaves, asked for too high a price for his stake.

Meanwhile, the FTSE 100 started well and touched a high of 5,249.5 only to lose ground and close at 5,215.2, up just 13.7 on the day, after US stocks fell in early trading on Wall Street. The FTSE 250 closed 19 higher at 7,434.6. There was brisk trade in ITV (more than 77 million shares changed hands) as City gossips once again suggested a bid for the company is just around the corner. Time Warner was once more mentioned as a possible buyer.

Despite the talk, ITV closed 0.25p lower at 120p as some in the Square Mile worried that RTL's move to buy out minority shareholders at Five could see the German broadcaster turn up the heat on ITV. "We do not see this as a near-term threat to ITV, but believe that a well-invested Channel Five with a multi-channel offering could prove a significantly greater competitor to ITV in terms of audience and advertisers further down the line", Numis Securities said.

Elsewhere, vague whispers of a possible bid for IMI pushed shares in the world's biggest maker of drink dispensers 5p higher to 423.75p. The company is said to be looking for a buyer for its Polypipe division which makes plastic pipes.

Friends Provident gave up 1p to 185p as SG Securities slapped a "sell" rating on the stock after its impressive performance over the past two and a half years. In this period, shares in the life insurer have more than doubled. SG also downgraded its recommendation on HBOS, down 3p to 875p. Cutting its stance on the banking giant to "hold" from "buy" the French broker said it was worried about the deteriorating outlook for consumer banking inthe UK.

Among small-caps, Savoy Asset Management gained 5p to 130p on the back of a solid set of results. The group, which is chaired by Kenneth Clarke, the former Conservative chancellor, reported a full-year profit before exceptional items of £630,000 compared with £240,000 in 2004.