In an age of internet betting, bingo clubs might seem an anachronism. Not so. They remain a key part of the social fabric in many towns in Britain and, if the changes to the gambling laws pan out as now indicated, they are set to remain so. As Top Ten Holdings is proving, they can also be made to generate real growth for shareholders.

Bingo got a fillip from the recent Government statement on deregulating gambling. Under the proposed regime, expected to come into force in two years' time, most casinos will not be allowed to offer bingo. That will leave the field clear for traditional bingo clubs, which hope to be able to offer a wider range of games – such as low-stakes roulette – too.

'The Government is backing our soft gambling stance,' says Top Ten's joint managing director, Alan Weston. 'It doesn't want to see bingo turned into a hard gambling environment, and nor do we.'

The new law will shift responsibility for licensing away from magistrates and to the local authority. 'We hope the local authorities will be offered more flexibility in the games they can allow us to offer,' says Weston.

Top Ten came to AIM two years ago with the stated goal of playing a consolidator role in a fragmented market. There are 705 bingo clubs in Britain, of which market leaders Gala and Mecca (part of Rank) have 173 and 123 respectively. After two sizeable acquisitions, Top Ten now ranks third, with 23.

But with only three other groups in double figures, there is no shortage of targets for Top Ten. And with Weston and his joint MD, Bruce Roberts, having over 20 years' experience of the industry – and deputy chairman Norman Weston having sold his first chain to Labrokes back in 1973 – the board knows where to look.

It also knows how to get revenues up after it has added a new chain. The five Welcome clubs in South Wales and the South West of England generated an extra 30 per cent in their first year under Top Ten management. The seven Masons clubs in the North East are already producing £1 more per guest after nine months with the group.

'Across the group as a whole, an extra £2 per head is equivalent to an extra £1 million of revenue a year,' says chairman Sir Aubrey Brocklebank. 'And a lot of that drops to the bottom line.'

There are other gains from building an expanded chain. Increased buying power means the Welcome clubs are now paying £20 a keg of beer less than when they were bought. The company gets national deals on gas and electricity and cheaper printing.

In the year to end-March, Top Ten more than doubled profits to £1.27 million and came close to doubling earnings per share – to 0.29p. Preliminary estimates from the company's house broker, Charles Stanley, suggest a profit of £1.8 million this year and earnings of 0.4p per share.

But that still will not reflect the full impact of the Masons acquisition. Top Ten is engaged in a lengthy refurbishment programme for six of the clubs. One, Billingham, has been closed since it was acquired and is now the subject of a £750,000 rebuild. It is not scheduled to reopen until September this year.

Billingham will then be the second purpose-built 'flat floor' club in the group (most of the UK's bingo clubs are converted cinemas). The payback on the £750,000 should be three years, says Brocklebank. There is no contribution anticipated for 2004, but it will clearly be a boost to the 2005/6 numbers. Two other refurbishments have started and will finish next month.

There is strong cashflow which should at least cover the refurbishment costs. Net debt stands at around £3 million and there is an undrawn banking facility of £2.4 million. Gearing is respectably low.

Last year's £4.5 million share placing at 5p was substantially oversubscribed so Top Ten would have no difficulty tapping the market for more funds if another acquisition came along. Nor should it. It has been buying club chains for about five times earnings. That is not bad when your own shares sell for four times that rating.

There are still plenty of questions over how gaming deregulation will work when (or even if) it materialises. The Government is committed to introducing a bill but that could yet fall foul of a spring 2005 election.

One thing looks certain. As envisaged, the new legislation would remove the 24-hour rule. This was introduced back in the 1960s and requires new members of bingo clubs (and not just casinos) to have joined at least 24 hours before they start playing.

With the threat of added competition from casinos much reduced, and plenty of

growth to come from the existing portfolio of clubs – never mind acquisitions – Top Ten looks a good long-term bet.