The Investment Column: Game on at London Clubs

London Clubs International, the London casino operator, is deservedly starting to attract admirers after having completed two full years on the stock market. Floated at 200p in 1994, the shares have outperformed the rest of the market by 113 per cent following yesterday's 4p rise to 527p.

The cause of this latest strength was evidence of another cracking year for the group. Pre-tax profits jumped 13 per cent to pounds 33.3m in the 12 months to 24 March and, as the record shows, concerns about the volatility of the group's earnings have proved wide of the mark. The dependence on the two upmarket casinos, the Ritz and Les Ambassadeurs, where the big rollers tend to hang out, has been cut from 85 per cent to 65 per cent over the past two years. The reduction was all the more impressive given that both turned in another strong result last year.

By the same token, the middle and down-market operations have taken up the slack, with the Palm Beach in particular continuing the turnaround identified at the half-way. But there are many reasons to believe the story has a way to go yet.

For a start, last October's purchase of the London Park Tower Casino for an initial pounds 16m is likely to chip in pounds 2.5m in its first full year with the group. Then there is the contract to run Lebanon's first casino for 20 years, which LCI won just after the Park Tower deal. The potential there is substantial, given that the group involved will have a 30-year monopoly in the country. The Casino du Liban, which will open in the autumn with 64 tables, well over double the number of London's biggest, is expected to generate pounds 2m of fees for LCI.

Even more substantial is likely to be the impact of the proposed liberalisation of UK gaming laws. The hope that the limit on slot machines will be raised from six per club to two or three per table could add up to pounds 5m to the bottom line, although the benefits could be a while off yet.

Valid doubts remain about LCI. The renewal of the lease on the Ritz casino beyond 1998 has yet to be agreed; Capital Corporation's Colony Club due to open tomorrow in Mayfair will hit custom and Beirut is still hardly a businessman's dream. But with the industry consolidating, LCI's 48 per cent share of the London market has obvious attractions to a bidder. In the meantime, profits of pounds 37m this year would put the shares on a prospective multiple of under 16. A firm hold.