UPDATE 2-Playtech slumps on slow William Hill progress

* Playtech says FY trading to be below expectations

* Says economic environment impacting licensees

* Sees H1 EBITDA in range of 43-45 mln euros

* William Hill says comfortable with FY consensus for online * Playtech shares fall almost 30 percent (Adds analyst comment, background, shares)

By Matt Scuffham

LONDON, July 21 (Reuters) - Online gaming software provider Playtech (PTEC.L) said on Tuesday that its full-year profit would be hit by flagging progress at its joint venture with William Hill (WMH.L), sending its shares plunging almost 30 percent.

Playtech, which agreed to link up with William Hill, Britain's second-biggest bookmaker, last October, blamed the setback on a prolonged integration period between the two businesses and difficult trading conditions.

The company, one of the biggest on the Alternative Investment Market (AIM), also said the challenging economic environment had impacted some of its other licensees and would contribute to full-year trading being below market expectations.

Playtech said, following a slower-than-anticipated start, that the joint venture, William Hill Online (WHO), was now making "encouraging progress".

Playtech said it "remains confident that the WHO transaction will prove to be transformational for the company and will make an important contribution to earnings in 2009 and beyond".

William Hill responded to Playtech's update by saying that it remained comfortable with the market consensus for WHO in 2009 and that the business had "made good progress during an extensive integration period and difficult trading conditions".

Playtech's deal with William Hill saw it take a 29 percent stake in WHO, which the bookmaker has an option to buy back in four to six years.

In turn, William Hill acquired some of Playtech's marketing and customer service operations, gaming brands and websites, and agreed to use its software for the next five years.

Investec analyst Matthew Gerard said he remained comfortable with the long-term prospects for WHO.

"We had increasingly expected more downbeat newsflow in the near term as the integration has clearly been more difficult than management had expected, but we take heart from the 'inline' guidance from William Hill this morning," he said.

SHARES PLUNGE

Gerard said William Hill's response implied "a simple case of estimate mismanagement from Playtech". The analyst added that he expected WHO to make a profit of 86 million pounds in 2009, ahead of the market consensus of 80 million pounds. Playtech shares were down 21.8 percent to 353.75 pence at 1115 GMT, having earlier been as low as 320 pence.

Deutsche Bank cut its recommendation on Playtech to 'hold' from 'buy' and its target price to 420 pence from 630.

Deutsche Bank said it now expected Playtech to post earnings before interest, tax, depreciation, and amortisation (EBITDA) of 96 million euros ($135.9 million) in 2009 compared with its previous forecast of 124 million. For 2010, it anticipated EBITDA of 111 million euros, downgraded from 147 million.

Playtech said it expected adjusted EBITDA in the first half to be in the range of 43 million euros ($61 million) to 45 million euros ($64 million).

The company said the underlying performance of its business had continued to be resilient with second quarter gross income 23 percent ahead of the same period the previous year and only slightly behind that achieved in the first quarter.

Shares in William Hill fell by 4.1 percent to 192 pence on the read-across and other stocks in the sector were also hit.

PartyGaming fell 2.9 percent to 239.75 pence, with 888 dropping 1.6 percent to 92 pence. Ladbrokes dropped 1.1 percent to 177.25 pence. ($1=.7063 Euro) (Reporting by Matt Scuffham; editing by Julie Crust and Karen Foster)