Investment Column: Odds stacked against Stanley

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The Independent Online
Stanley Leisure, the casino operator and bookmaker, has lost its winning streak over the last few months. Its shares have fallen almost 15 per cent from a peak of 320p since last spring over fears that its casino business was failing to come up trumps and that the Government had put its plans for the deregulation of the industry on hold.

However, pre-tax profits rose 37 per cent to pounds 10.1m for the six months to October, causing the share price to perk up 9p to 273.5p.

Casino profits did fall 9 per cent to pounds 4.73m. However, its pounds 1.5m scheme to solve a staffing crisis is working and the business looks to have turned the corner. The bookies chain can also look forward to a big one-off boost from the World Cup. Perversely, the takeover of the Coral betting chain by Ladbroke should help business. Ladbroke is unlikely to compete with Stanley for any new sites on the market and competition authorities may even force it to put more bookies up for sale.

But Stanley's problem is that organic growth in both its divisions will be hard to come by. The Government is unlikely to allow operators new slot machines for at another year at least and probably much longer, a move which had promised to increase Stanley's revenues dramatically. As for betting, most of the growth has come from new numbers games and slot machines but the prospect of further growth here is somewhat limited. It is a worrying trend that the number of betting slips taken has actually fallen in the last six months.

Analysts forecast pre-tax profits of around pounds 24m-pounds 25m for the year to April, putting the shares on a prospective p/e ratio of 18-19.

Given Stanley's strong management team, which is armed with a pounds 40m war chest, the rating is justified but the upside looks relatively limited. Hold.