Analysts Refuse To Gamble On Stanley Leisure

Britons enjoy a flutter and, after the relaxation of gambling rules in November 2005, more and more are heading to UK casinos. This plays into the hands of the likes of Stanley Leisure, which is expected to meet analyst expectations when it reports full year results this week.

With 37 provincial casinos and four in central London, Stanley is the UK's biggest casino operator. It has been splashing out to take advantage of relaxed gambling laws, but analysts have cooled toward the £500m company after a storming performance by its share in the past 12 months.

In November 2005 the government relaxed gambling rules, allowing casinos to advertise, abolishing the 24-hour rule which meant potential gamblers had to wait a day after applying to join a casino before playing, and allowing more electronic gaming machines.

Stanley is almost doubling the number of electronic roulette machines in its casinos to 1,000, up from 600 this time last year, adding valuable revenues.

Last year Stanley sold off its betting shop operations to William Hill allowing it to concentrate on its casinos while returning £325m to investors.

A dip in trading at its London venues in August after the terrorist bombings proved to be only a temporary problem and since then the relaxing of rules has benefited trading.

Stanley owns four London casinos including the prestigious Crockfords where Australian billionaire Kerry Packer lost £7m in three weeks in 1999.

But after a rise in the share price from 418p to 715p over the past 12 months, many analysts feel the potential for more upside is limited. In recent weeks, HSBC has issued a neutral rating and Shore Capital, Panmure Gordon and Williams de Broë have all rated Stanley as a hold.

HSBC has a fair value of 764p-835p and a notional price target of 800p. It said: "We believe the UK's relaxation of gambling restrictions on advertising, the 24-hour cooling-off period and membership rules plus a doubling of the number of gaming machines will drive growth."

Investec has a buy rating and said: "Overall, group trading was in line with expectations in the first half although lower footfall in London impacted high-end casinos after the terrorist incidents." It believes that the second half has been solid "and the initial effects of deregulation are encouraging."

Footfall across the industry is believed to have been 8% higher since the laws were relaxed. Stanley has also targeted more expansion with applications for five new casinos approved and others under review.

The company remains the subject of takeover speculation due to the 11.8% shareholding of Malaysian gambling company Genting which also holds 29.8% of rival London Clubs International although Genting describe its stakes as strategic holdings.