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THE INVESTMENT COLUMN: Alphameric's software approach to the races

BOOKIES LIKE to monitor how much cash is piling on to certain horses in certain races throughout their network of betting outlets, so they can narrow their odds if they become worried about paying out. Alphameric, a provider of sales software to the betting industry, allows them to do just that, and trading in betting shops has never been better.

This is mainly thanks to the popularity of virtual roulette machines which are raking in cash for bookmakers, who are willing to spend on software to get even more from their customers. Alphameric said sales to bookies were up 15 per cent, and operating profits up 44 per cent to pounds 4.2m, in the year to the end of November. It has secured a pounds 25m contract with William Hill for a new electronic point-of-sale system, giving it solid revenues for 2005.

If only Alphameric hadn't taken such a gamble on providing software systems to the retail sector. It expanded at the height of the dot.com boom but did not get much scale and has since been haemorrhaging cash. Its retail division was sold last year, but not without a pounds 56m loss.

The underlying business does look to be improving. It is expanding into the hospitality industry, supplying pubs and restaurants, such as the Yates chain, with electronic tills that hook up to ordering systems. Sales here were up 24 per cent.

The company has backed the right horse by getting out of retail. But we have always been slightly nervous of Alphameric's lumpy revenue streams, which depend on contract wins. At about 17 times earnings, it needs a better track record before we could recommend it. Avoid.