The launch of the National Lottery threatened to reverse their run of luck until new gaming laws were introduced. The new rules raised the prize limit on one-arm bandits in pubs and amusement arcades from pounds 6 to pounds 8 in tokens. All-cash fruit machines are being installed from July.
But it was the prospect of Kunick tapping into Britain's 9,000 betting shops that has sustained interest in Kunick's shares, which almost doubled in the last year. Bookmakers will be able to install two machines in each shop when the new rules come in this summer.
With 16 per cent of the country's 200,000 fruit machines, Kunick looked well-placed to take advantage of a market analysts reckoned could generate pounds 1m extra profit for every 3,000 new machines.
Kunick, though, now says it is not going to chase market share when bookies install up to 15,000 machines. Chief executive Russell Smith insists Kunick will have "a decent representation" but it will not take on loss- making betting shop contracts.
He may be right, but unless analysts overestimated the size of this market, Kunick's more lukewarm stance suggests it is struggling in the face of tough competition from the likes of Leisure Machine Services, the Bass-owned market leader.
The cost of upgrading existing machines was one reason why interim pre- tax profits released yesterday fell from pounds 7.9m to pounds 4.0m, though the main culprit was the absence of a pounds 3.9m exceptional gain taken last year when Kunick sold 50 per share of its French nursing homes business.
Brokers have pencilled in pre-tax profits of about pounds 10m, implying a p/e ratio of 20 falling to 16 next year if pounds 11.7m is made. The shares fell yesterday 0.75p to 30.25p and are likely to slip lower now that the de- regulation story appears, for the time being, to have run its course. Take profits.
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