Smaller Companies: Crockfords' shares for gamblers only

THE RECENT flood of results from smaller companies has delivered its customary batch of unusual stories. But two companies in particular last week stood out for their peculiar and high-risk investment characteristics.

Crockfords, the stand-alone casino business in Mayfair, London, and Sleepy Kids, producer of Budgie the Little Helicopter and other cartoons, do not lend themselves to traditional financial analysis.

Forecasting their results for next week, let alone the year ahead, is practically impossible. Novelty value is the most justifiable reason for investing in them.

First, the risks. Just 10 high- rollers accounted for more than half the money gambled at the Crockfords casino last year. The mind boggles to think of the consequences if any of them foreswore gambling.

The only guarantee that Crockfords has of raising income is by hedging its bets. Acquisitions are a necessity, particularly in London where high-rollers move from casino to casino in the course of an evening.

Once it has established a mini- empire in London to compete against London Clubs International, which has six casinos and is thought to be close to re- attempting a flotation, it will have to set its sights overseas.

However, the overseas strategy does not have to be based on acquisitions. Most of Europe is free of the hideously tight legislation in Britain's Gaming Act and has an abundance of casinos crying out for better management.

Crockfords' management is held in high regard in the industry, and it is almost certain that it will cash in those skills by securing management contracts on the Continent.

One risk that ought to be much reduced is the threat of closure because of an indiscretion by a member of the management.

Alongside the statutory annual Gaming Board licence for a casino, executives will from 1 April have to obtain a 'white licence' for themselves.

This means that any misdemeanour by an individual will be punished by the withdrawal of his licence, so lessening the chances of a club losing its own licence and being forced to cease trading.

This point will no doubt be emphasised by London Clubs if it pushes for a stock market listing. The company had at the eleventh hour to withdraw flotation plans a couple of years ago because of an early morning police raid.

As for Sleepy Kids, there is no guarantee that the licences it issues for its products - 50 so far for Budgie - will produce income.

This outcome was clearly hinted at in the company's results statement, which said that dividends would be considered once a more normal pattern of trading had been established.

Investors should also take note of the vacuum-like support for Sleepy Kids' shares. Even though the high-flying share price eased on the figures, the historic p/e multiple was a staggering 315.

Crockfords and Sleepy Kids are for gamblers and cartoon addicts only. Lady Luck is not known for her generosity.