Investment Column: Grainger is looking like a real bargain

888 Holdings; Discover Leisure

Our view: Buy

Share price: 135.5p (+1.6p)

In keeping with recent news from the housing market, Grainger, Britain's biggest quoted residential landlord, yesterday said that it is on track to notch up a 42 per cent rise in half- yearly sales from its core and retirement divisions. Its pipeline is also looking healthy, with another £30m of transactions in the works.

At the same time, the company, which issued an update yesterday, has been taking advantage of the improving market conditions and is completing, exchanging or placing in solicitors hands "some £42.6m of property acquisitions" in the six months to the end of March. That compares with £12m over the whole of last year. The balance sheet is healthy enough, too: the company said cash and committed borrowing facilities at the end of March should come in at around £300m.

So it's all looking highly promising and we should steam in, right? Up to a point. The economy looks fragile at best and the flow of mortgages, though much improved from the depths of the financial crisis, is still subdued. Some may wonder about the sustainability of the housing market's improvement. Sector sentiment, and along with it Grainger's share price, could be at risk if indicators trend down again. However, there are also grounds for confidence. While the housing market won't gush forth as it did before the crisis, mortgages should become more abundant, supporting housing related stocks, particularly ones with promising prospects, like Grainger.

Another plus point for Grainger is the management, which proved itself by steering the ship deftly through the crisis, refinancing and undertaking a rights issue. Having seen the company through the slump, we're confident management can keep it going, and continue make progress. We said hold at 145p last year, and the shares have fallen since then. But trading at a discount to what Merrill Lynch describes as its "trough" net asset value (of 145p) Grainger is beginning to look like something of a bargain. Buy.

888 Holdings

Our view: Avoid for now

Share price: 104.5p (+3p)

888's share price has recovered rather strongly since the kicking it took last year on the back of results that were less than well received. Yesterday the online gaming group received another boost after its business-to-business unit Dragonfish – which provides games for other people – retained its contract with Cashcade, the bingo operator which owns some of the biggest brands in the fast-growing British market including Foxy Bingo, Cheeky Bingo and Think Bingo.

The reason behind the contract extension – which sees 888 providing full technology services, back office and platform integration together with ePayment services for specific countries – is that Cashcade is now owned by 888's rival PartyGaming. There was always the risk that Party might decide to take the Cashcade contract, Dragonfish's biggest, in house.

In fact, it is doubly good news given that Dragonfish has been the jewel in 888's crown as revenues at the business-to-consumer division have been falling, not least because of the downturn and the fact that there are bigger brands out there with bigger budgets. Economic recovery should further help but even though we've missed out on 888's bounce back, having sold at 88p in August, we still feel that the shares are pricey at 15 times this year's forecast earnings with a prospective yield of just 2.8 per cent. There are more exciting and cheaper opportunities to be had in gaming. Avoid for now.

Discover Leisure

Our view: Speculative buy

Share price: 1.4p (+0.1p)

The last year has been anything but a holiday for Discover Leisure, the caravan and motor home retailer. It stared into the abyss last summer but was rescued by a company voluntary arrangement – an insolvency procedure – enabling it to shut down 10 of its 15 sites and exit the holiday home market. Yesterday, Discover touted a significantly reduced pre-tax loss of £1.9m for the half-year to 28 February.

While the restructuring resulted in revenues tumbling 55 per cent over the period, the company said its core remaining properties are "performing well". It also said that confidence appears to be growing slowly in the market for touring caravans, accessories and the after-sales market, but this has yet to filter through to demand for more expensive motor homes.

Discover Leisure's shares still trade at a pitifully low level, which suggests that investors are far from convinced it is out of the woods. But for anyone feeling brave, prospects for Discover Leisure, which has net debt of £12.9m, can surely only get better not least because of the growing appetite among Britons for "staycations" in the UK. The stock is a speculative buy for those with a strong stomach.