Rank slides to loss on impairment charges

The UK government’s white paper on gambling sector reform, published back in April, should benefit Rank (RNK). Although mooted reforms include new stake limits on online slot machines, the planned easing of restrictions of the number of gaming machines in casinos and the types of machines allowed in bingo halls should make the owner of the Grosvenor and Mecca venues a relative winner when it comes to the new policy environment.

Chief executive John Reilly said that Rank is “well advanced with plans to maximise these opportunities”. The group invested £20mn in the Grosvenor estate in the year and said it is improving the quality of the machines on offer at Mecca venues. 

But in the meantime, the group fell to a significant statutory full-year loss as a result of £119mn of impairment charges relating to trading at 95 venues across its estate. The group reduced expectations for future growth in a pessimistic update in December. A higher cost base also hurt the bottom line here. Labour market pressures were apparent in the £16mn wage bill increase across the group, while energy bills rose by over £5mn. Underlying like-for-like (LFL) operating profits came in at £20.3mn, at the top end of a revised guidance range, but well below the £42.5mn posted last year. 

The top line was helped by a pick up in customer visit numbers, although older bingo players have been slower to return to the group's halls. Revenue growth was posted across all divisions, with the strongest relative uplifts seen at Rank's Enracha venues in Spain (up 19 per cent) and digital operations (up 10 per cent). Grosvenor, the group's revenue driver, and Mecca posted growth of 4 per cent and 7 per cent, respectively. 

Shore Capital analyst Greg Johnson argued that "the current valuation [18 times the broker's forward earnings forecast] fails to capture either the recovery potential, the building position in digital, or what we see as a favourable outcome from the gambling review". 

Post-period trading was strong, with underlying LFL revenues 16 per cent ahead of last year. But there is a long way to go before underlying profits recover to pre-pandemic levels. Hold.

Last IC View: Hold, 90p, 26 Jan 2023