Rank hit by rising costs

Rank’s (RNK) pre-tax profits surged due to a meaty £77mn VAT refund as revenues boomed against the lockdown-scarred comparatives. But trading at the gambling group, which runs the Grosvenor casinos and Mecca bingo halls, still lags pre-pandemic levels and a rising energy cost burden is hitting margins. 

Chief executive John O’Reilly told Investors’ Chronicle that there had been an uptick in overseas visitors at the end of the year in Grosvenor’s key London market. Average weekly net gaming revenue (NGR) at Grosvenor for the first seven weeks after the year-end grew by 11 per cent versus the fourth quarter.

NGR on a like-for-like basis at Grosvenor was up by 275 per cent to £297mn, up by 149 per cent to £134mn at Mecca, and up by 89 per cent to £30mn at Enracha bingo halls in Spain.  But digital NGR, boosted by the migration of business to a proprietary technology platform, was the only division to outperform against 2019.

Energy costs climbed by more than half at UK venues to £23mn, which helped push Grosvenor’s operating margin down from 20.7 per cent in 2019 to 15.2 per cent this time. Rank is exposed to the impact of rising bills on “lower-spending customers”, as Peel Hunt analysts have flagged. Yet the shares trade at six times Goodbody’s financial year 2023 earnings forecast, lower than consensus ratios for competitors such as Entain (ENT) or Flutter Entertainment (FLTR). And O’Reilly argued that the group is well positioned to benefit from the results of the UK government’s gambling white paper, with the potential for increasing the number of gambling machines at casinos from 20 to 80. Hold.

Last IC view: Hold, 151p, 27 Jan 2022