Stanley Leisure deserves to keep drawing in the punters

Avoid St James's while the rich get poorer; Hold Misys and wait for banking sector to pick up

A few years ago, a night out in one of Stanley Leisure's casinos was about as exciting as a game of Old Maid. But Bob Wiper, the group's shrewd head croupier, has changed all that. While not quite the all-singing, all-dancing affairs they could be given recent changes to gaming legislation (Mr Wiper is too stingy to pay for singers), the casinos are proving a big draw for the punters.

New games, such as the ancient Chinese dice game Sic Bo and Wheel of Fortune, have been rolled out across the 37 provincial casinos, as has a revamped food and drink offering. This, and a strong showing from the capital, helped operating profits at the division to smash expectations, soaring by 50 per cent to £21.8m for the six months to 27 October. High rollers in the group's three prestigious London joints, which include Crockfords, helped Stanley to report the industry's highest "drop" (how much cash they take) across its estate at £310 a head.

After playing a poor hand in its quest to secure a tie-up with its rival London Clubs International, Mr Wiper was keeping his cards close to his chest regarding its interest in LCI's Palm Beach and 50 St James casinos, which are up for sale. Takeover rules may mean LCI is off the group's radar for six months, but Mr Wiper will clearly be back.

A tough summer for bookmakers with more favourites romping home on race-courses across the UK meant that the picture at the group's chain of more than 600 Stanley Racing betting shops was a little less rosy. Turnover rose by 30 per cent to £381.5m, reflecting the changes to betting duty, the football World Cup and a boost from 500 fixed-odds betting terminals, but a series of hits to the gross margin meant profits were less impressive.

Overall, Stanley reported a 54 per cent rise in interim pre-tax profits before goodwill amortisation to £24.7m and a 30 per cent jump in turnover to £473m.

The stock, up 7.5p at 370p yesterday, has been a winner since this column last tipped it 18 months ago, and deserves its premium rating of 14 times earnings.

The prospect of further deregulation means Stanley could attract attention from overseas predators. Buy on any weakness.

Avoid St James's while the rich get poorer

When even rich people haven't enough money to invest in the stock market, times get tough for St James's Place Capital, the upmarket insurer and wealth manager.

The business, which is 60 per cent owned by HBOS and run by Sir Mark Weinberg and Mike Wilson, yesterday revealed sales for 2002 were down 22 per cent, and down 29 per cent in the last quarter. Plunging markets have made even wealthy investors nervous.

The story is familiar across the insurance sector, but St James's Place is somewhat exempt from the malaise affecting other life insurers. The investments it sells are direct equity vehicles, such as unit trusts. These do make it more vulnerable to volatile markets, but it does not sell the with-profits products that are crushing other insurers' capital and it is free from any solvency concerns.

Revenues in 2002 came from raking in higher fees from existing clients for legal, accounting, banking and investment services, which were up 134 per cent. St James's Place sells solely through 1,000 self-employed salesmen, who are partners in the business. It wants up to another 100 by the end of the year.

Even with an increased salesforce, however, its fortunes are inextricably bound to the stock market. If it picks up and investors start to take interest again, St James's wealthy clients will make it better placed than most to charge ahead. The shares closed down 2.4 per cent yesterday at 123.5p, a price-earnings ratio of 10. With a significant market rally looking unlikely the shares are best avoided.

Hold Misys and wait for banking sector to pick up

Results from Misys showed life at the software company is clearly not as bad as some had feared and sent its shares up 5 per cent to close at 181p.

Its healthcare division, which provides IT systems to doctors and hospitals, mainly in the US, was the star performer and helped counter the tough conditions hitting the other parts of its business.

In the six months to 30 November, pre-tax profits before goodwill and exceptionals came in at £56m, up 16 per cent. This was in line, if not slightly ahead, of most analysts' forecasts.

The company's main profit generator – its banking division -- has clearly had a tough time. Revenues there fell 9 per cent to £140m, although profits were more or less flat at about £27m – as customers continue to take a cautious approach to spending on IT.

While admitting the near term outlook for the division continues to remain tough, Misys reckons the market has now probably bottomed out but has also cut costs, axing 350 jobs – or about 4 per cent of the group's headcount.

The company's financial services division – a network of independent financial advisers – increased profits during the six-month period although the company warns that the UK life and pensions market continues to be challenging. It now expects that the business will be floated on the stock market at some point in 2004.

Its healthcare business, meanwhile, grew underlying revenues and operating profits by 9 per cent and 5 per cent respectively and prospects there, it says, remain bright.

Analysts are predicting Misys will make a profit of about £120m for the current year putting the shares on a forward price-earnings multiple of about 11.

That does not seem particularly demanding but until signs emerge that banks are starting to splash out on IT systems again and until general economic conditions pick up, the stock is probably a hold.