Investment View: Three gambles - but were they winning bets?

Probability's platform gives it a leg-up on most of the competition in mobile gaming

Before last year's Cheltenham Festival this column offered up three gambles from the stock market; smaller companies I felt would be winners for investors. In the darker reaches of the London Stock Exchange, I uncovered bright lights, cannabis treatments and (appropriately enough) bets on mobiles.

But were they winning bets? Well, of the three, there has been one superstar, one has been a less than stellar performer but may soon come good, and one cannot, sadly, be described as anything other than a relative dud.

Probability, tipped at 74p, is the less-than-stellar performer (at least where its shares are concerned) that I think will come good. The only pure-play mobile phone gambling specialist on the market, it has been interesting to watch.

Over the last year or so the business has changed substantially, moving into providing product for other, larger gambling firms. That makes sense. You don't have to spend gazillions on marketing to win this sort of business in the way you most certainly do when you sell direct to consumers.

It is a testament to the quality of the Probability offering that the likes of William Hill, Paddy Power, and a number of other big names are among clients or partners. In the meantime, the company turned its first quarterly profit (in the most recent quarter), successfully raised £2.6m from investors in January, and looks set to bounce back strongly this year.

It wasn't long ago that the aforementioned William Hill nearly bought the group, the deal floundering on account of a third-party relationship which had power of veto. Now, given the way the business has changed, you'd think that it would be more likely for a gambling technology group to take a pop at Probability. In the meantime it has moved into Italy (profitably) and is hunting for partners in the US, where the laws prohibiting remote gaming are easing. Moving across the Atlantic would be a major coup.

Mobile will increasingly become the favoured venue for online gaming. Probability's platform gives it a leg-up on most of the competition, and one day these shares – now 62.5p – are going to take off, if someone doesn't gobble up the company in the interim.

Next up are those lights, in the form of Nanoco, which has been a star, at least when it comes to this column's tipping prowess. The shares were about 70p when they were featured in the last "gambles" column. They've more than doubled since, at one point hitting 200p, although they're trading at 161.75p now. The big news, and the reason for the froth in the shares, was a licensing deal the company signed with Dow Chemical, which will manufacture and sell Nanoco's cadmium-free quantum dots.

I've been waiting for something like this for some time, because it will be a game changer for the company. Quantum dots have huge potential. They are minute particles whose uses include the lighting of visual displays and lighting generally. Being free of cadmium, a nasty heavy metal pollutant, is their chief virtue, and they could also have biomedical applications.

Dow's backing is a big win. So, time to take profits? If you were in at the beginning (and this column has been saying buy for years) you could do worse. But Canaccord, the broker, thinks the shares could go as high as 275p. I'd stick with it. They're still worth buying.

The final member of the trio of tips is GW Pharmaceuticals, which has so far been the real disappointment. The shares were just under £1 when we looked at them. They've since been gradually declining, and are now at 60.75p.

GW is a pharmaceutical company which makes use of the cannabis plant. It grows the stuff, quite legally, somewhere in southern England. Its Sativex drug is intended to treat some of the effects of multiple sclerosis.

The problem the company has had is getting paid for it, especially in Germany, Europe's biggest pharma market, but also elsewhere on the continent. As a result, the shares have been disappointing.

There are still reasons for optimism. The company has taken a listing on Nasdaq, which should provide visibility and attract investors from the world's biggest pharma market. And there is promise that Sativex may find an unexpected use in the treatment of cancer pain.

The shares have hinted at a revival recently, although they are not out of the woods yet, but if the phase three US clinical trials come good, watch them take off.

GW has so far been a disappointment but the potential is still there. It has received a US patent for its spray drug delivery device, while Britain has eased some restrictions on prescribing Sativex. So all is not lost.

If you'd backed all three, you would still be showing a profit. That's largely thanks to Nanoco. Next time around I would hope that both GW and Probability have picked up the slack. Fundamentally, despite GW's travails, I still like all three, and think they will pay off in the medium term, if not before.

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