The Investment Column: Online gaming company 888 is worth a gamble

Longmead Group; Telford Homes

Our view: Buy

Share price: 150p (+3.25p)

Investors who like a punt might well be a customer of online gaming group 888. But for those who prefer a more secure search for returns, buying the group's stock is probably a better way of cashing in than a game of poker.

888 was dealt a blow when it had 50 per cent of its business wiped out when the United States government imposed a ban on online gaming in October 2006.

In fact, the company has recovered well: 888 is now signing up more members, about 1,000 a month, than it was when it was allowed to operate in the US and annual results announced yesterday beat most analysts' expectations.

"888.com's final results are 4.4 per cent ahead of our [profit before tax] expectation and with Q1 seeing further growth we feel comfortable nudging up our full year 2008 [profit before tax] forecast by 1 per cent," say watchers at the broking group Numis, which recommends its clients buy the stock.

And for those worrying about the economic gloom, there is more good news. The group is a fairly defensive stock, argues Gigi Levi, 888's chief executive. The case is that as the economy heads south, people are more likely to stay in and log on than go out.

Levi says that the typical punt of £10 to £20 is not big enough to put too many people off. Analysts at Dresdner Kleinwort agree with him.

"Current trading is strong and as expected the continued growth of the industry means that macro-economic issues are largely irrelevant. We remain overweight [on] the online gambling sector," they say.

The company has done a lot to offset the loss of its US business and has recently moved into the bingo and sports betting sectors, as well as taking to steps to form partnerships to break into new markets, such as Latin America.

For those wanting to hedge their bets, Levy admits that changing regulations are a constant, if unforeseen threat (the move by the American government two years ago was not foreseen either).

Results posted yesterday showed a £45.8m net profit, an increase of more than 100 per cent on 2006. Buy.

Longmead Group

Our view: Cautious hold

Share price: 9p (-1.5p)

"This year won't be brilliant," concedes Ray Newman, the chairman of bathroom suite makers.

In truth, the past few years have not been brilliant either. The group has suffered for at least the past five years as its once premier customer Homebase has sought an increasing amount of its supply from cheaper overseas sources. The result has been dramatically bad for Longmead; since 2002 turnover from sales to Homebase has fallen from £1m each year to just £100,000 in 2007.

Moreover, stock write-offs led to a trading loss of more than a quarter of a million pounds last year, down from a loss of £170,000 the year before.

All bad you might think: and for the most part you would be right. The group has a miserable last few years and given the state of the balance sheet you have probably no chance of a dividend in the immediate future.

However, it is not all that terrible. Mr Newman reckons the series of disappointing figures might be nearing the end. He says that business with Homebase is all but finished and points to a growth of 12 per cent to general trade buyers as big plus.

A graph of the group's shares is bad enough to keep any investor awake at night, but at 10.5p a share, some buyers might consider that there is potential for capital growth. The economy might be on the group's side as well. As house prices slump, the perceived wisdom is that people are more likely to consider a bit of home improvement rather than moving.

The increasing value of the pound relative to other currencies also helps the company import materials cheaply, which is helping to improve Longmead's margins. According to Newman, the higher quality end of the market is performing best and the group has recently brought out new designs in its most expensive range. Cautious hold.

Telford Homes

Our view: Hold

Share price: 164.5p (+6.5p)

When the Halifax Building Society announced yesterday morning that house prices had fallen by 2.5 per cent in March, the nation groaned. But Andrew Wiseman, the chief executive of London house Telford Homes, reckons the news is simply confirming what people in his industry have known for some time.

The company specialises in developing sites in east London, and Mr Wiseman believes his group is well placed compared to the rest of the sector because it pre-sells the vast majority of its new homes early in their development. He does, however, concede that 2008 will be tougher as a result of both buyers and buy-to-let investors finding it increasingly difficult to get a mortgage.

Despite potential trouble ahead, the company said in a trading statement yesterday that its figures to 31 March will meet expectations, especially after a strong performance in the second half of the year. "In the middle of the general gloom, we've had a fantastic year," says Mr Wiseman.

Telford is hoping to profit from the development of east London's Olympic sites in 2012.

With the area's infrastructure being improved, the group expects to benefit from the associated demand from housing in the area and the high number of brownfield sites that can be developed. Hold.