Investment Column: Stanley weathers the Lottery storm

Gaming group Stanley Leisure has been hammered by the National Lottery, a hot summer, a cold winter and the advent of Sunday race meetings. Pre-tax profits slumped from pounds 17m to pounds 14.8m in the year to April; but there are grounds for hope that the worst is over.

The succession of problems which hit the racing division last year are not likely to be repeated. Margins, down as much as two percentage points at times last summer, have recovered some of the ground lost during the hot weather, which reduced both the size of the fields and interest in race meetings. Sales of scratch cards, which had a big impact on the smaller punter, have dropped to less than 40 per cent of their level at their March 1995 launch. All being well, there should also be no repetition of the pounds 750,000 hit as a result of the loss of a week's racing to bad weather after Christmas.

The figures this year will also be boosted by acquisitions. Stanley added 45 shops in the period, which chipped in a maiden pounds 600,000 to these figures; but the real booster will be the 74 added by the pounds 14.7m takeover of Gus Carter in June.

Boosted by the addition of two Scottish operations, casinos chipped in pounds 10.5m to operating profits, up from pounds 9.8m. However, underlying growth remains sluggish: although attendances are up in the first part of the current year, margins are down.

Factoring in a recovery on the betting side, profits of pounds 21m this year would put the shares, up 2p at 502p, on a forward price/earnings ratio of 20.

As with all the gaming groups, the market is factoring in big benefits from the current round of deregulation. Allowing slot machines in betting shops and more in casinos will help this year, but the big kick will come if proposals to raise numbers to two per gaming table are implemented. High enough even so.