Investment Column: Sportech's pool betting can be a winner

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The Independent Online


Our view: Buy

Share price: 42p (-0.25p)

Is Spot the Ball a game of skill or chance? A high stakes game is in progress on just that issue with £40m, and possibly much more, up for grabs. In the red corner sits HM Revenue & Customs, which says putting your X in the right place on the photograph is a matter of skill, so stakes carry VAT. Sportech, which runs the game, begs to differ. It says it's a game of chance (no VAT), not least because the location of the ball bears no relation to reality: it is decided upon by an independent panel. The issue is set to be decided by a tribunal.

But even if Sportech loses, these shares offer good value. Sportech is a very different business to what it was a few years ago. Now a pool betting specialist, with operations in 30 countries including the US, India and the UK (where it runs the football pools), the shares have been dogs for long-term holders. But they may prove to be greyhound derby winners for those who get in now. Why? Well, yesterday's trading statement showed a company in decent health, with earnings set to be in line, while (highish) debt has slowly been coming down. A bid for the Tote could light a fire under the operation, although there's a crowded field of bidders so don't hold your breath.

Notwithstanding that, the shares trade on just 7.7 times full-year 2011 forecast earnings, which could start to look very cheap even without the Tote's potential or the possible VAT rebate. At that level it makes sense to be a buyer.

All Leisure

Our view: Speculative buy

Share price: 44p (-3p)

Last year was an annus horribilis for the travel industry, and All Leisure, the niche cruise operator, did not escape the fallout from Icelandic volcanic ash, weakness in sterling and soaring fuel prices. The group, which operates brands including Swan Hellenic, Hebridean Island Cruises and Discovery Egypt, made a loss of £2.04m for the year to 31 October, following a pre-tax profit of £2.6m the previous 12 months. Two of its brands were operating fly cruises at the time of the ash disruption in April, and All Leisure took a £1.4m hit. The group also warned of continued cost pressures.

That said, there were several sunnier sides to its statement that may tempt potential investors aboard. The amount of ocean cruise capacity sold for winter 2010/11 and this summer is already ahead of its previous financial year. All Leisure is also introducing a booking fuel supplement from May to mitigate the rising sterling cost of fuel.

Perhaps more significantly, the company increased its full-year dividend to 1.95p, from 1.82p. The shares trade on just 5.7 times forecast earnings. So despite an uncertain outlook for holiday spending, we think All Leisure is worthy of speculative interest.

Amiad Filtration

Our view: buy

Share price: 193.5p (+2p)

Amiad Filtration has had a roller-coaster year. The Aim-listed Israeli water filter group completed its $10m (£6.3m) merger with its nearest rival, Arkal, in June, massively extending its presence in the irrigation sector, boosting its geographical reach and saving on the expense of developing its own polymer-based system.

Yesterday's trading update, ahead of full-year results in April, confirmed expectations of 27 per cent growth in full-year revenues to $88m, compared with $69m last year, with a boost to operating profits in the second half, thanks to a slight rise in gross margins and an increasing contribution from Arkal, as global recovery restarted investment in water infrastructure.

Amiad is not an investment for the faint-hearted. Its shares rocketed to 233.5p in April, only to slump by 26 per cent in July, following disappointing first-half numbers, before roaring back to 226.5p in November, and then losing another 15 per cent since, for a reason the company and its brokers are at a loss to explain.

That said, the company has considerable prospects. And increasing global population, rising wealth and warmer temperatures, which are pushing water purification up the world's agenda, spell good business for the group's industrial, municipal and irrigation operations. There is also headroom in the price – shares trade on 11 times 2011 forecast earnings, falling to 8.6 times in 2012 – if the loop-the-loops don't throw you off in the meantime. Looking for a thrill? Buy.