Rank's venues weak but guidance maintained

Gambling group Rank (RNK) fell to a chunky statutory pre-tax loss after putting through almost £100mn of impairment charges, as it revealed a mixed performance at pandemic-scarred venues.

The group pointed to “soft trading in UK venues” and venue closures as the chief reasons behind the impairment. Weak in-person trading was seen in the top line – like-for-like net gaming revenues were down by 1 per cent to £237mn at venues. Grosvenor, the group’s biggest revenue stream, was the driver of the decline. Its sales were down by 5 per cent, and its operating profit collapsed by 71 per cent. Mecca and Enracha managed to post growth, although only the latter enjoyed improved profits.  

Chief executive John O’Reilly told Investors’ Chronicle that venue visits by older customers are heavily down against pre-pandemic levels and that cost of living pressures have impacted demand.

Digital sales provided better news. These were up by 9 per cent to £101mn, driven by the migration of Grosvenor onto Rank’s proprietary technology platform, and the digital operating profit rose by almost £10mn. Management expects “strong growth” on this side of the business in the second half of the year. 

While there was promising trading over Christmas and the New Year, Rank kept its full-year profit guidance steady. This seems sensible after the group was burned by profit warnings in 2022. Management forecasts an annual underlying like-for-like operating profit in the range of £10mn to £20mn, significantly less than the £40mn posted last year.

Looking ahead, there could be a boon to come from regulatory developments. Analysts think that the long-awaited gambling white paper from the UK government will boost Rank’s prospects.

Broker Numis said that Rank could be the “key beneficiary” of the white paper. It expects that reforms “will allow more machines and a better mix of machines to be installed across [Rank's] casinos and bingo venues which would lead to a [more than] 60 per cent upgrade to earnings”. House broker Peel Hunt, meanwhile, said that “changing archaic rules for Grosvenor and Mecca could greatly benefit the business”.

Rank, and the rest of us, await the policy details. In the meantime, analysts think there is significant upside available for investors. The mean target price, according to FactSet consensus forecasts, is 133p. Despite the venue sales contraction, the digital performance and white paper hopes provide some respite. Hold.

Last IC View: Hold, 87p, 18 Aug 2022