Rank Group — Digital revenues are back on track

Rank Group (LSE: RNK)

Last close As at 27/03/2024

73.00

0.80 (1.11%)

Market capitalisation

GBP342m

More on this equity

Research: Consumer

Rank Group — Digital revenues are back on track

In line with expectations, l-f-l revenues (46 weeks to 14 May) increased 1%, with a 13% growth in digital offsetting a slight revenue decline in Grosvenor Casinos’ and Mecca’s venues. Earlier platform issues have been resolved and we expect digital revenue growth to accelerate, with the H118 introduction of a single wallet fuelling market share gains. The core business is highly cash generative, enabling progressive dividends, as well as potential M&A. Despite this, the stock trades at a calendar 2017e 6.5x EV/EBITDA, a 30% discount to peers. Our estimates are unchanged.

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Consumer

Rank Group

Digital revenues are back on track

IMS - 46 weeks to 14 May

Travel & leisure

18 May 2017

Price

205.9p

Market cap

£804m

€1.16: £1

Net debt (£m) at 31 December 2016

33.0

Shares in issue

390.7m

Free float

29%

Code

RNK

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.9)

1.1

(16.1)

Rel (local)

(5.0)

(2.1)

(30.6)

52-week high/low

255.1p

186.8p

Business description

Rank is a gaming-based leisure and entertainment company. Its Grosvenor and Mecca brands are market leaders in UK multi-channel gaming and it also has operations in Spain and Belgium. In FY16 86% of revenues came from its venues and 14% from its digital operations.

Next events

Capital Markets Day

24 May 2017

Final results

17 August 2017

Analysts

Victoria Pease

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5730

Rank Group is a research client of Edison Investment Research Limited

In line with expectations, l-f-l revenues (46 weeks to 14 May) increased 1%, with a 13% growth in digital offsetting a slight revenue decline in Grosvenor Casinos’ and Mecca’s venues. Earlier platform issues have been resolved and we expect digital revenue growth to accelerate, with the H118 introduction of a single wallet fuelling market share gains. The core business is highly cash generative, enabling progressive dividends, as well as potential M&A. Despite this, the stock trades at a calendar 2017e 6.5x EV/EBITDA, a 30% discount to peers. Our estimates are unchanged.

Year
end

Revenue*
(£m)

EBITDA**
(£m)

PBT**
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

738.3

126.3

74.1

14.6

5.6

14.1

2.7

06/16

753.0

128.2

77.4

15.4

6.5

13.4

3.2

06/17e

764.0

127.0

76.0

15.3

7.1

13.5

3.4

06/18e

785.0

133.0

81.5

16.4

8.2

12.6

4.0

06/19e

813.0

140.0

88.0

17.7

8.8

11.6

4.3

Note: *Revenue is before customer incentives. **Normalised, excluding amortisation of acquired intangibles, one-off and exceptional items.

Growth in digital: Mecca has turned the corner

Digital revenues increased 13% vs the prior year, with Grosvenor Casinos’ digital channel growing 35%. Importantly, previous platform migration issues at Mecca’s digital channel now appear to be resolved and Mecca’s digital revenues increased 2% over the period, implying an uplift since December. As detailed in our Outlook note in February, Rank has only 2% of the UK online casino market despite being the leading UK casino operator and number two in bingo. We anticipate market share gains, with the introduction of a single wallet in H118 providing cross-selling opportunities. Rank’s Capital Markets Day on 24 May should provide further details.

Venues slightly down

L-f-l revenues at Grosvenor Casinos’ venues declined by 1%, affected by a lower gaming margin. Mecca’s venues l-f-l revenues were down 2%, with lower customer visits partially offset by an increased spend per visit. This is in line with our FY17 figures. For FY18 onwards, we note that Grosvenor could benefit from the current triennial review, if it is allowed to add more gaming machines. Additionally, a potential clampdown on betting shop FOBT machines would be competitively helpful.

Valuation: Attractive 6.5x 2017e EV/EBITDA

Rank’s calendar 2017e P/E and EV/EBITDA are 7% and 30% below the peer average, respectively. It has more consumer exposure than pure online peers, but substantially more digital upside and none of the FOBT risks faced by the bookmakers. An expected move into net cash by FY18 underpins a progressive dividend policy and provides the firepower for potential M&A. Our forecasts remain unchanged.

Exhibit 1: Financial summary

£m

2014

2015

2016

2017e

2018e

2019e

June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

707.7

738.3

753.0

764.0

785.0

813.0

Cost of Sales

(409.2)

(414.2)

(418.8)

(437.8)

(449.6)

(461.6)

Gross Profit

298.5

324.1

334.2

326.2

335.3

351.5

EBITDA

 

 

116.0

126.3

128.2

127.0

133.0

140.0

Operating Profit (before amort. and except.)

72.4

84.0

82.4

80.0

85.0

91.0

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(46.5)

2.1

9.3

(2.4)

0.0

0.0

Operating Profit

25.9

86.1

91.7

77.6

85.0

91.0

Net Interest

(9.9)

(9.9)

(5.0)

(4.0)

(3.5)

(3.0)

Other finance adjustments*

(1.6)

(1.7)

(1.1)

(0.9)

0.0

0.0

Profit Before Tax (norm)

 

 

62.5

74.1

77.4

76.0

81.5

88.0

Profit Before Tax (FRS 3)

 

 

14.4

74.5

85.6

72.7

81.5

88.0

Tax on norm PBT

(13.9)

(17.0)

(17.4)

(16.3)

(17.5)

(18.9)

Profit After Tax (norm)

48.6

57.1

60.0

59.7

64.0

69.1

Profit After Tax (FRS 3)

0.5

57.5

68.2

56.4

64.0

69.1

Average Number of Shares Outstanding (m)

390.7

390.7

390.7

390.7

390.7

390.7

EPS - normalised (p)

 

 

12.4

14.6

15.4

15.3

16.4

17.7

EPS - (IFRS) (p)

 

 

5.2

19.1

18.2

14.2

16.4

17.7

Dividend per share (p)

4.5

5.6

6.5

7.1

8.2

8.8

Gross Margin (%)

42.2

43.9

44.4

42.7

42.7

43.2

EBITDA Margin (%)

16.4

17.1

17.0

16.6

16.9

17.2

Operating Margin (before GW and except.) (%)

10.2

11.4

10.9

10.5

10.8

11.2

BALANCE SHEET

Fixed Assets

 

 

613.3

607.2

614.1

621.0

626.0

625.0

Intangible Assets

390.2

395.7

404.3

405.0

406.0

407.0

Tangible Assets

217.5

204.0

202.0

208.0

212.0

210.0

Deferred tax/other

5.6

7.5

7.8

8.0

8.0

8.0

Current Assets

 

 

87.9

123.4

100.5

107.0

116.2

118.4

Stocks

3.1

2.8

2.9

3.0

3.2

3.4

Debtors

37.7

31.0

36.6

37.0

38.0

40.0

Cash

47.1

89.6

61.0

67.0

75.0

75.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(168.4)

(309.4)

(173.9)

(182.0)

(184.5)

(189.0)

Creditors (incl provisions)

(164.0)

(184.5)

(159.5)

(167.0)

(170.0)

(174.0)

Short term borrowings

(4.4)

(124.9)

(14.4)

(15.0)

(14.5)

(15.0)

Long Term Liabilities

 

 

(290.5)

(126.8)

(188.1)

(165.0)

(135.0)

(90.0)

Long term borrowings

(179.7)

(17.6)

(87.8)

(75.0)

(55.0)

(20.0)

Other long term liabilities

(110.8)

(109.2)

(100.3)

(90.0)

(80.0)

(70.0)

Net Assets

 

 

242.3

294.4

352.6

381.0

422.7

464.4

CASH FLOW

Operating Cash Flow

 

 

55.0

146.6

110.2

115.2

130.0

136.0

Net Interest

(8.1)

(7.5)

(5.0)

(3.0)

(3.0)

(2.5)

Tax

(19.1)

(2.2)

(31.1)

(13.7)

(16.3)

(15.8)

Capex

(44.3)

(31.9)

(52.7)

(50.0)

(48.0)

(46.0)

Acquisitions/disposals

0.3

(1.0)

16.2

0.0

0.0

0.0

Financing

0.0

0.0

0.0

0.0

0.0

0.0

Dividends

(16.4)

(18.6)

(22.7)

(26.6)

(30.9)

(33.6)

Net Cash Flow

(32.6)

85.4

14.9

22.0

31.8

38.1

Opening net debt/(cash)

 

 

104.1

137.0

52.9

41.2

23.0

(5.5)

HP finance leases initiated

(2.3)

(3.1)

(2.8)

(3.0)

(3.0)

(3.0)

Other

2.0

1.8

(0.4)

(0.8)

(0.3)

(0.6)

Closing net debt/(cash)

 

 

137.0

52.9

41.2

23.0

(5.5)

(40.0)

Source: Rank Group accounts, Edison Investment Research. Note: *Revenue is before customer incentives.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rank Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Rank Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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