The Investment Column: Stanley Leisure is not worth gambling on until it wins some new licences

Why not have a nibble at FishWorks? - GW Pharma's hopes could still go up in smoke

Shareholders in Stanley Leisure, the gaming group, have scooped a 250p-per-share jackpot thanks to the sale of the company's betting shops to William Hill.

The disposal was completed yesterday, and details of how the cash will be handed back will be made public next month. Now, Stanley will concentrate on its casinos - an understandable decision given that the biggest changes in the casino industry in 40 years are about to happen.

Under the new Gambling Act, operators will be able to advertise for the first time. They will be able to double the number of lucrative slot machines they can install to 20. Customers will no longer have to be members of the casino for 24 hours before they play. All this should drive extra revenues to Stanley, the biggest casino operator in the UK with 37 provincial venues and four in London.

Its enormous Star City venue in Birmingham was a bold venture, based on hopes the Gambling Act would allow casino groups like Stanley to build supercasinos all over the country, with hundreds of slot machines in each one. But it now looks a bad gamble. The Government reined in the number of new casinos it would allow to 17, only one of which will be a supercasino. Stanley will have to slug it out with all the other casino groups to win any of these precious new licences. Meanwhile, Star City is struggling without the revenues it had hoped for from hundreds of extra slots.

Even shorn of its betting shops, which were 40 per cent of the business and which have had a bad run of sports results recently, Stanley's earnings will still be volatile. Lucky punters are often able to turn the tables on the house. We took a pessimistic view of Stanley before the Government changed its plans, believing the company's small venues would suffer in the face of competition. Since then Genting, the Malaysian leisure group, has been building a stake in Stanley. Shares rose on bid hopes.

But Genting is turning out to be more of a long-term investor, running a joint venture with Stanley to bid for a supercasino licence. A merger of Stanley with the rival operator London Clubs International (LCI) also seems unlikely when LCI's shares are an expensive 25 times earnings.

Stanley will benefit from the freedoms of the new Gambling Act, but at around 20 times 2006 earnings, the shares already seem fully valued given that there is no certainty it will win any new licences.

Why not have a nibble at FishWorks?

You might have thought that FishWorks would have proved a tough flotation, given that the last fish restaurant chain to appear on the stock market, Tony Allan's Fish!, collapsed into administration in 2002.

And yet FishWorks, a veteran of the Ofex market since 2000, has just graduated to AIM and raised £4.4m to fund its expansion plans. It already has five restaurants, including two in London, and is about to open a concession in Harvey Nichols in Knightsbridge. Clearly, this is a more upmarket proposition than Fish! ever was.

Not that upmarket necessarily makes a better investment than mass market. In fact, you might be more worried about the fickleness of fashion. Investors tempted by the stock should try before they buy, pop in for dinner to see if they think it is a concept that will last.

FishWorks is fussy about its fish, refusing to open on a Monday when nothing is fresh, but it uses the sites as a cooking school then, and the sites also include a fishmonger's which improves profitability and could make them into something of a village amenity. The undoubted enthusiasm of the management, including the Bath-based founder Mitch Tonks, will count for much in this growth phase, and with none of the debt that encumbered Fish!, the business ought to be able to manage a handful of new sites each year. At 43.5p, the shares look worth a nibble.

GW Pharma's hopes could still go up in smoke

While multiple sclerosis sufferers have long argued that smoking cannabis relieves their muscle problems and chronic pain, it has taken GW Pharmaceuticals to develop the world's first medicine based on cannabis and available on prescription for MS patients.

The drug is Sativex, an under-the-tongue spray, and it was launched yesterday as a pain medicine for MS in Canada. This is a monumental achievement for a UK drug company and it speaks highly of the company's scientific nous and the chutzpah of its founder, Geoffrey Guy.

But it is not a reason to invest in GW's shares. It is having a much harder time getting Sativex approved in the UK, where the regulator has been more sceptical of its claims to relieve spacticity. Go back and do more work, GW was told.

That work is costly. Losses were pared to £5.1m in the first six months of the year, but the company is still burning through more than £1m a month and knows that regulators are demanding bigger and more statistically significant trials if Sativex is to get on the market in Europe. Although there will be some money coming in from Canadian sales, the company's £16.2m cash pile will be whittled away by the end of next year.

Encumbered with a history of over-optimism, the company knows it will not be able to raise cash from shareholders at the current price. So it is hoping instead to sell marketing rights to Sativex in continental Europe as it has done in the UK and Canada. Unless Canadian sales turn out to be spectacular (unlikely in a country which already allows MS sufferers to smoke cannabis), these deals might not bring in enough. Avoid.

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