The Investment Column: 888 may seem a risky play, but it shows progress

Our view: Buy

Share price: 117.75p (-4.75p)

Ladbrokes and 888 Holdings seem to have been flirting forever, but like Prince William and Kate Middleton, the relationship is off.

This was always going to be a difficult deal to consummate - Ladbrokes is the aristocrat of this pair while 888 is the attractive upstart with all sorts of things to recommend it. Trouble is it comes with baggage in the form of its former US business and all the attendant legal issues that brings with it.

Ladbrokes could never be sure that this baggage would not come back to bite it if it became 888 Holdings' owner, so the talks were terminated and 888 is back on its own.

But enterprising investors could see this weakness as an opportunity to buy. Ladbrokes is not the only possible suitor for 888 after all, with a host of other potential bidders out there. Post the US crackdown on online gaming, there remain too many operators battling for slices of a much smaller pie.

Shrewdly, 888 paid far more attention to that pie before the crackdown than its rivals. It was far less reliant on the US when the roof fell in, and in a much better position to cope with the new reality. It is also expanding into areas beyond just online poker and casinos, such as bingo, looking to become a much more diverse leisure company.

The results next week ought to provide fresh evidence of progress and the current valuation - at 21 times 2007 earnings falling to 17 times in 2008 - could begin to look rather cheap afterwards.

As with any online gaming group, 888 will always be a risky play. But 888 is in a better position than most and for those willing to take a punt, buying on yesterday's weakness could be a clever move.

Lok'nStore

Our view: Speculative buy

Share price: 269.5p (+1p)

There were very few negatives in first half numbers from self-storage group Lok'nStore. But the shares have already returned almost 350 per cent in the past three and half years and investors must be wondering if the time has come to cash in.

Lok'nStore looks to be in excellent shape going forward and the board is clearly comfortable with its outlook for the rest of the year, highlighted by the fact that yesterday's interims included the promise of a maiden full-year dividend. First half turnover rose by 23.8 per cent to £5.3m, with pre-tax earings up 78.8 per cent to £1.4m.

The market's largest player, Big Yellow Group, trades at a premium of about 50 per cent above its net asset value, whereas Lok'nStore is valued at a much more modest 15 per cent premium. That said, the shares are not cheap.

According to estimates provided by the broker Investec, Lok'nStore is currently trading on 128 times forecast 2007 earnings, falling to 90 times forecast 2008 earnings.

However, the group's property portfolio, with 11 freehold sites out of 21 in total, has not been valued since last year and is expected to be re-valued later this year. A new £40m banking facility has been agreed and the group expects to accelerate the growth of new sites. The strong growth record of Lok'nStore, its solid financial position and its discount to peers make the shares a risky buy despite its racy valuation.

Leyshon Resources

Our view: Speculative buy

Share price: 28.5p (1.25p)

Many industry analysts believe that China will not only become the world's leading consumer of gold within the next decade, it will also become the world's leading producer.

Anecdotal evidence suggests that for all of the advances the Chinese economy has made, only about 1 per cent of transactions are carried out by cheque or credit card. The general distrust of the banking system means that many ordinary Chinese people convert their cash into gold, which may lead to unseemly scrambles to dig up gardens when anyone dies but also creates a steady demand for non-jewellery gold.

Leyshon Resources has a 20-year licence to operate in the mineral-rich Heilongjiang province on the north-east border, and is the first company to operate in an area that has already produced more than 20 million ounces of gold.

Heilongjiang may be remote but investment in infrastructure has been intense and it boasts three international airports and a brand new motorway system.

Yesterday's update shows all the right signs that Leyshon is making progress from being an explorer to a producer, and it is on track to begin production by the final quarter of 2008. The market should begin to re-rate the shares as production approaches.

Independent consultants have estimated Leyshon's resources at 1.21 million ounces of gold and 3.72 million ounces of silver. With a low cost base, sound infrastructure and a hoard of enthusiastic gold buyers on its doorstep, Leyshon looks well worth tucking away.