Rank Group results: What the analysts said

The Rank Group today recorded digital revenue growth of 15% to £111.5m for the 12 months ended 30 June 2017.

Group revenue was up just 1% as land-based revenues continued to slide with revenues down 3% to £397.2m for Grosvenor Casinos and 4% to £213.6m for Mecca Bingo halls.

Despite steady growth, and an overall positive outlook from the analysts, Rank’s share price dropped 2.5% to 234.5p on the London Stock Exchange, at the time of writing.

Below are a selection of analyst notes on the operator’s financial results:

Shore Capital

The stronger than expected growth in digital was partially offset by venues, with casino profit down £7m year-on-year (we forecast a £4m decline), albeit H2 was ahead of the first half, with the weak gaming margin, especially in London, continuing to impact, along with the continued implementation of due diligence measures; we would expect this to revert to norm going forward. Bingo venue profits were also down £3m to £30m reflecting continued admission declines. Enracha, the group’s Spanish bingo operation, reported a 53% increase in profit to €7.2m, which was slightly ahead of expectations.

Stock rating: Buy

Goodbody

Overall a broadly positive set of results from Rank. Group revenue and EBITDA were flat YoY at £755.1m and £128.8m respectively and broadly in line with forecasts. Grosvenor revenue is soft but easier comps and cost discipline should help deliver profit growth in FY18. Mecca venues is clearly challenging however the market continues to attach a relatively low multiple to this business. The key positive is the performance in Digital, a core part of the Rank investment case, which continues to accelerate the top line and has delivered a significant step-change improvement in profitability. Given the softer trends in Mecca, we anticipate nudging our FY18 group EBIT forecast down to c. £83m (from £85m). Soft retail trends are a concern but not dissimilar to recent performance of retail bookmakers. We believe investors should focus on the momentum in Digital.

Stock rating: Buy

Regulus Partners

Some of Rank’s weak retail performance is likely to normalise through luck and management action, though lacklustre provincial casino and near-double digit customer disengagement with land-based bingo demonstrate that operational ‘more of the same’ is a recipe for potentially precipitate structural decline, in our view. Rank is not facing the possibly existential threat of regulatory intervention that LBOs are, but unless it (like many land-based gaming businesses) uses a relatively ‘quiet’ regulatory period to invest heavily in growth (brains as well as cash), the medium-term result may look disconcertingly similar. Online is broadly tracking the UK market overall, meaning latent retail and brand strengths are not yet being effectively leveraged to gain share: this is a significant opportunity, but a 13% remote mix is also a clear threat.