The Investment Column: London Clubs

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GAMBLING MAY be a risky business, but London Clubs International, the UK-based casino operator, is doing its best to lower the stakes. Yesterday's announcement that the company has resolved the long-running uncertainty surrounding the pounds 1bn Aladdin casino in Las Vegas and renegotiated its stake in the joint venture lifted the shares 11.5p to 121p. The rise came despite a 10 per cent fall in the group's interim profits to pounds 8.7m on turnover down pounds 4.4m at pounds 75.3m.

Through a debt for equity swap struck LCI will raise its stake in the Vegas club from 25 to 40 per cent. The casino will open its doors in 2000 and is expected to add about pounds 10m to the company's pre-tax profit in the first year of operation.

Back in the UK, things are not so rosy. The group results may not be directly comparable with last year because of the sale of the Cannes casino in southern France and the closure of its operation in Hurghada, Egypt. But the London operations have suffered from the burden of oppressive gaming duty and legislation as well as the threat of newly established online gambling sites.

LCI is attempting to confront both of these challenges by lobbying for more lenient legislation and planning its own Internet venture. It has already opened an information website and will soon be offering online gaming for fun as a precursor to the "real thing", which, regulatory clearance permitting, will be launched next year. LCI's chairman, Alan Goodenough, said he sees the Internet as a great opportunity, since the group's market penetration of the UK adult market is currently just 2 per cent.

LCI's earnings potential clearly lies overseas though limited UK growth will act as a brake. Assuming full-year profits of pounds 17m, the shares trade on a forward multiple of 15. At these levels the shares are for gamblers only.