ShareCrazy.com

This week I've gone for an exiting technology stock, one which has seen its share price rise rapidly over the past few weeks but still looks like a good bet in the long term. The company is Probability PLC (PBTY), which is a provider of gambling services on mobile phones. The market for mobile gaming is forecast to rapidly expand over the next few years. Research suggests that, boosted by improving technology and an increasing acceptance of mobile phones as a form of entertainment, more than 460 million mobile phone users are expected to download games by 2009, more than a double the current number. With first mover advantage Probability looks well placed to take advantage of that growth.

Through its flagship brand, Lady Luck's, Probability offers a range of games in the two areas of casino games; which include roulette, blackjack and video poker, and so called 'softer' games which include bingo and virtual slot machines. The company also has several white label deals with companies including Orange, News International and Blue Square, where it typically earns money on a revenue sharing basis.

The company recently announced a trading statement reporting on the quarter from 1st October to 31st December 2007. Over the period net gaming revenues were up by 38% to £930,198, with a net operating profit being reported for the first time. 47,373 new customers registered during the quarter, raising total numbers to 276,275, an increase of 22%. The customer acquisition rate was 45% greater than in the three months to 30th September. Over the festive season trading was exceptionally strong with 30% more cash being deposited to customers gambling accounts in December than in November. The 23rd of December 2007 was the company's busiest day to date, with up to 9.5 bets placed per second. At over £1 million the company's cash reserves remain strong.

In terms of the competition Probability has first mover advantage in that it has a tried and tested offering which is proven to work. With many gambling operators wanting to get into the market this provides an opportunity for Probability to sign further white label deals. The complex technology needed to allow games to work on the wide range of mobile phones in the market provides a barrier to entry which means that would be competitors would find it cheaper to buy Probability's services than to start from scratch.

In the year to 31st March 2008 Probability is forecast to more than double revenues to £2.7 million and post a loss at the pre-tax level of £0.2 million. In 2009, as the company benefits from recently signed white label deals, as well as an increasing customer base, it is forecast to post maiden earnings of 3.3p per share. In the short term we can these figures being increased significantly as there is the potential for new white label deals to be signed. In 2010 I can see earnings rising to at least 5p. That rates the shares at around 13 times earnings which, I think, considering the long-term prospects and opportunities for further white label deals, looks good value. Buy.

Key Data

EPIC: PBTY
Market: AIM
Spread: 63-65p (3.07%)

Scarlett Moore pens a weekly share tip for users of Sharecrazy Supermarket. It costs just 3.99 pounds a month to access Scarlett's tips. The supermarket also offers an in depth sector report each quarter worth £15 (this quarter's report is 6 Oil stocks you must buy NOW!), the rumour mill (read the latest rumours and stories on stocks and shares every day), a 20% discount on top investment books and websites and discounts on top English wine plus much more. To access this premium product for the equivalent of less than a quid a week click HERE.

*The value of your investment and the income from it can go down as well as up and you may not get back a significant proportion of your investment. Past performance is not a guarantee of future performance. If you are in any doubt as to the suitability of an investment, you should seek independent financial advice.