Numbers come up for 888

Published on Monday 17 November 2008 21:01

SCRUTINEER

888

78p -1p

SUPERFICIALLY, it might look as unlikely as drawing a full house in a game of five-card stud. But online gaming firm 888 maintains it is not bluffing when talking up its prospects in the recessionary climate enveloping us all.

Alongside its trading update yesterday, 888 chief executive Gigi Levy (nice Runyonesque name, incidentally) said he believed the company would prove resilient in the downturn because people consumed the product at home rather than being required to go out.

In addition, Levy reckons earnings could be helped by acquisitions. Some would balk at going into the takeover market in these times, but 888 says there are a lot more private gaming companies being offered at realistic prices than was the case a year ago.

Even so, the online gambling industry is not totally immune from the adverse conditions.

Although 888's total operating income in the third-trading quarter to end-September was up 24 per cent at $68 million (45.6m) it was 2 per cent below Q2 because of the global economic conditions, it said.

Meanwhile, it was a case of swings and roundabouts on the forex markets. The strong appreciation of the US dollar has hit the group's turnover since late August, but it also benefited because most of 888's expenses are tied to non-US dollar currencies, which depreciated during the period.

And, overall, yesterday's figures from 888, even with the gathering pressures, are significantly more robust than might have been expected.

Net gaming revenue was up 23 per cent in Q3, with NGR from casino up 18 per cent and poker NGR steady.

Perhaps Levy has it right. Up and down the country, people are stuck in the boxroom before a computer, happy in a gambling land of their own as they ignore the cold economic leaves blowing past the window.

ADEPRESSING new forecast for the UK's economic prospects from the CBI shows just how fast prospects are changing for the worse.

There was a massive weekend revision to the CBI's forecast for 0.3 per cent growth in the UK economy in 2009, which was only made in September.

Yesterday, the bosses' organisation said it now expected the economy to contract 1.7 per cent next year, blaming the fallout from the worldwide financial turmoil. The pace of the change is stunning.

"What is clear is that the short and shallow recession we had hoped for a matter of months ago is now likely to be deeper and longer-lasting," John Cridland, CBI deputy director-general, said.

The CBI, which has a bit of expertise in these matters, says it now believes unemployment will reach two million by the end of 2008, and 2.88 million in 2010.

From the US Treasury to American and UK politicians, to central banks and regulators, and now the CBI, it has just been a litany of organisations having to respond almost on the hoof to events given the breathless pace they are unfolding at.

A couple of thoughts occur, however. When was the last "short and shallow" recession in the UK?

Hardly the early 1990s or the three-day-a-week 1970s. And a point often overlooked is that even when the economy stops actually contracting, effective economic stagnation can often continue for some time after.

In short, even when the person in the street is told that a recession is technically over, there still may be a considerable time when no sense of real practical improvement in the economy is felt.

BENJAMIN Franklin had it wrong. Three things are certain in life: death, taxes and politicians arguing about taxes.

Chancellor Alistair Darling is dropping heavy hints that targeted tax cuts towards the lower-paid are on the way before Christmas.

Shadow chancellor George Osborne says this is irresponsible, as future generations will have to bear tax increases to eventually balance the books again.

I'm with Osborne on this one, while fully supportive of the bold action taken by the Bank of England on interest rates.

I also do not think it can be assumed anymore that giving tax cuts to the lower-paid will necessarily stimulate the economy because they will spend it rather than cut debt or save it against the economic storm-clouds as Middle Britain might.

The looming tax move looks hasty and ill-thought out.

Premier 'rebuffs Mr Kipling bid'

RUMOUR OF THE DAY

SHARES in Premier Foods rose 13 per cent after reports said McVitie's-to-Penguin firm United Biscuits (UB) had made a secret bid to buy Mr Kipling.

Premier chief executive Robert Schofield is understood to have rebuffed private equity-owned UB, leaving the biscuit group weighing up a direct approach to banks or shareholders.

Premier is looking to reduce its 1.8 billion debt mountain. "We think that Kipling is a useful illustration of the potential benefits to Premier's valuation from disposing of a 'crown jewel'," said Investec analyst Martin Deboo, who estimates the division could have a disposal value of about 200 million.

"While this deal would almost certainly be dilutive, this would be more than compensated by the benefits of increased covenant headroom."

Upbeat Volex on track to meet full-year targets

SMALL BUT BEAUTIFUL

ELECTRICAL and electronic cable assemblies firm Volex yesterday posted half-year revenues up 22.8 per cent, and said lower commodity prices and a stronger dollar would help it meet full-year expectations.

Revenues were 155.1 million, against 126.3m in the first half of 2007. Volex, which has a market value of just 17m or so, also reported operating profits of 2.4m in the 27 weeks to 5 October, down from 4.6m a year ago, but a return to profitability from the loss of 300,000 reported in the first half.

Chairman Mike McTighe said: "Whilst we have not yet seen a decline in the interconnect markets, we are seeing a reduction in demand for power products, which serve the consumer market."

The Warrington company, whose customers include Apple, Sony and Phillips, produces electronic and fibre optic cables, plugs and connectors and has operations in Asia, Europe and North and South America.

McTighe added: "The structural improvements we have made, coupled with the favourable impact of lower commodity prices and the stronger US dollar will enable the board to meet its expectations."

Bryan Johnston of Bell Lawrie

ONE TO WATCH

Ladbrokes

147p -9.5p

Scotsman says BUY

LADBROKES, as is well known, is a betting and gaming company. It has three divisions, European retail,eGaming, which comprises gaming and betting activities online, and telephone betting. The group also operates 2,640 betting shops in the UK, Ireland, Belgium and Italy.

Along with the rest of the market, Ladbroke's share price has tanked during the past 12 months. Economic woes are thought to have a bearing on "the drop" – the amount wagered – as well as the political sensitivity of the industry.

Gordon Brown is no fan, reversing his predecessor's decision over super casinos, while the industry is also under investigation by the Gambling Commission to determine whether there is any link between Fixed Odds Betting Terminals – the UK's near-equivalent to one-arm bandits – and problem gambling; the report is expected next year. On the other hand, there is evidence that gambling, like drinking, is resilient during times of economic uncertainty.

The latest figures from Ladbroke were encouraging, with revenue growth up 12 per cent, and this despite poor weather hitting race meetings, and one or two unexpectedly large wins. Online gaming is growing apace – 22 per cent higher over the past six months – and the conventional betting shop operations continue to deliver a strong performance.

With many investors, both individual and collective, looking at gaping holes in their prospective dividend stream where banks and cash deposits used to be, Ladbroke's prospective dividend yield of around 9 per cent looks a pretty persuasive argument in support of the stock for monitoring the stock, if for no other reason.

&#149 The value of your investment could fall and you may get back less than you invested. You should take professional advice if you have any doubt about the suitability of this company for your portfolio.

Macfarlane wraps up a shares rise as profits still on track to increase

SCOTS STOCKS

PACKAGING group Macfarlane added a fifth to its share price yesterday after confirming it was still on track to increase profits despite demand softening. The company, which recently cut its headcount by 50, said it expected demand to continue to deteriorate in 2009, but news of rising profits this year sent shares up 20.7 per cent to 17.5p.

Credit Suisse cut its target price on oil services company Wood Group from 350p to 325p, but despite maintaining a "neutral" rating on the Aberdeen-based company, shares eased by 3.75p to 222.75p.

Edinburgh-based publishing group Johnston Press, owner of The Scotsman, continued to slide on continuing fears for the advertising market. Shares fell 2.87p to 9.88p.

Crude oil contracts again decreased, sending shares across the sector down. Among the hardest hit were Aim-listed companies, with Edinburgh-based Bowleven dropping 6.25p to 91p, while Aberdeen-based Faroe Petroleum slipped 8.75p to 67.5p. On the main market, Melrose Resources lost 5.9 per cent, closing down 13p at 207.5p.

Devro, the sausage skin company, rose half a penny to 77p, after it said sales in most markets were still growing. It also benefits from falling energy prices and currency movements.