The gong sounds for Rank

Of all the sectors most deeply affected by lockdowns and trading disruption, few were hit harder than Rank (RNK) as a business that straddles hospitality, in-person gaming and the basics of social contact. As 79 per cent of the company's revenue is generated by its hospitality venues, both the Mecca bingo halls and the Grosvenor casino businesses – it was no surprise, then, that the company tipped into hefty full-year losses in these results. However, with the removal of capacity restraints, and other social distancing guidelines, Rank has started to trade ahead of its breakeven point of £4.4m per week.

The accounts revealed how hard management had to work to maintain a decent level of cash flow. The company was kept afloat by the UK and Spanish governments’ various furlough schemes. Rank received a total of £70.5m from the coronavirus job retention scheme. In addition, rent deferrals of £12.2m were booked during the year, with settlement of arrears over the next 12 months via agreed payment plans. In this context, the resulting cash outflow of only £15.3m from its business operations can be considered a positive result.

The surprising point was the extent to which Rank’s digital operations are dependent on footfall in its venues. Management recognised that digital revenue was disappointing, with a 17 per cent fall in net gaming revenue in the year to £177m, with the biggest issues visible in its Stride business. The underperformance was partly due to the hard line the Gambling Commission has taken on affordability checks for regular users – this leaves Rank in a bind as only 9 per cent of its customers were willing to provide evidence of their income, with the rest simply taking their business elsewhere to less regulated outfits.

Some of the digital channel’s issues can be addressed by migrating Mecca and Grosvenor on to a new proprietary platform, although this isn’t expected to be completed before the third quarter of next year. Interestingly, it is unclear whether Rank currently has a head of its UK digital division, with both previous heads seemingly promoted to group level posts.

Rank has no choice but to continue investing in its digital channels, which already contribute over 50 per cent of its revenues. The shares trade at a forward PE ratio for 2022 of 22, due in part to the catastrophic fall in earnings. A long recovery awaits. Hold.

Last IC view: Hold, 129p, 10 Sep 2020