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Currency in GBP
Last close As at 25/03/2023
GBP0.72
▲ −0.60 (−0.82%)
Market capitalisation
GBP341m
Research: Consumer
The 19% growth in digital revenue is the key highlight in Rank Group’s trading update (16 weeks to 15 October). Grosvenor digital was up 34% and, encouragingly, Mecca digital has moved to double-digit growth (up 11% vs 2% in FY17). In a continuation of previous trends, Venues l-f-l revenues declined by 1%, leading to a 2% l-f-l growth in total group revenues. Notwithstanding the decline in Venues, the core business is highly cash generative, enabling progressive dividends, as well as potential M&A. Rank Group does not face any B2 FOBT risk from the triennial review and may even benefit if it is allowed more machines. Despite this, the stock trades at c 6.8x EV/EBITDA for CY18e. Management reiterated its expectations for the full year and our estimates remain unchanged.
Written by
Victoria Pease
Rank Group |
Mecca digital picking up growth |
AGM trading update |
Travel & leisure |
19 October 2017 |
Share price performance
Business description
Next events
Analysts
Rank Group is a research client of Edison Investment Research Limited |
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The 19% growth in digital revenue is the key highlight in Rank Group’s trading update (16 weeks to 15 October). Grosvenor digital was up 34% and, encouragingly, Mecca digital has moved to double-digit growth (up 11% vs 2% in FY17). In a continuation of previous trends, Venues l-f-l revenues declined by 1%, leading to a 2% l-f-l growth in total group revenues. Notwithstanding the decline in Venues, the core business is highly cash generative, enabling progressive dividends, as well as potential M&A. Rank Group does not face any B2 FOBT risk from the triennial review and may even benefit if it is allowed more machines. Despite this, the stock trades at c 6.8x EV/EBITDA for CY18e. Management reiterated its expectations for the full year and our estimates remain unchanged.
Year |
Revenue* |
EBITDA** |
PBT** |
EPS** |
DPS |
P/E |
Yield |
06/15 |
738.3 |
126.3 |
74.1 |
14.6 |
5.6 |
15.7 |
2.4 |
06/16 |
753.0 |
128.2 |
77.4 |
15.4 |
6.5 |
14.9 |
2.8 |
06/17 |
755.1 |
128.8 |
79.3 |
16.3 |
7.3 |
14.1 |
3.2 |
06/18e |
785.4 |
131.1 |
79.6 |
16.1 |
8.1 |
14.3 |
3.5 |
06/19e |
816.4 |
137.7 |
86.7 |
17.5 |
8.8 |
13.1 |
3.8 |
Note: *Revenue is before customer incentives. **Normalised, excluding amortisation of acquired intangibles, one-off and exceptional items.
19% digital growth is the highlight
Rank Group is beginning to reap the rewards from the online potential in the business, with 34% growth in Grosvenor digital and 11% growth in Mecca digital. This compares to 43.9% and 2.1% in FY17 respectively. The growth in Mecca digital is particularly encouraging, after the difficult start to this business in 2016. For the full year, we forecast total digital growth of 18.7% to £132.4m, equating to 16.9% of total revenues. The launch of the single wallet is expected in mid-2018.
Venues: reorganisation for FY18 turnaround
Similar to FY17 results, Venues’ l-f-l revenues declined by 1%. Driven by a lower than average win margin, Grosvenor Casinos’ l-f-l revenues declined by 1% and Mecca Venues were down 2% (vs -1% and -3% at FY17). As detailed in our June Capital Markets update, Rank is implementing numerous cost-savings plans and reinvigoration initiatives across the estate and the group is now creating a single leadership team across the retail businesses, allowing for improved synergies. Management has reiterated FY18 expectations and we forecast a return to growth in Grosvenor in FY18 (1.5% to £403m), with flat revenues in Mecca (£214m).
Valuation: 6.8x CY18e EV/EBITDA
Rank’s CY18e EV/EBITDA of 6.8x is meaningfully below the peer average. Although it is more affected by retail challenges than its pure online peers, there is considerably more digital upside. From the current triennial review, Rank faces none of the fixed odds betting terminal (FOBT) risks and might even benefit if it is allowed more machines (as detailed in our UK Gaming Sector report). An expected move into net cash by CY18 underpins a progressive dividend policy and provides the firepower for potential M&A.
Exhibit 1: Financial summary
£'m |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
||
June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
707.7 |
738.3 |
753.0 |
755.1 |
785.4 |
816.4 |
Cost of Sales |
(409.2) |
(414.2) |
(418.8) |
(439.3) |
(449.9) |
(463.4) |
||
Gross Profit |
298.5 |
324.1 |
334.2 |
315.8 |
335.5 |
353.0 |
||
EBITDA |
|
|
116.0 |
126.3 |
128.2 |
128.8 |
131.1 |
137.7 |
Operating Profit (before amort. and except.) |
72.4 |
84.0 |
82.4 |
83.5 |
83.1 |
89.7 |
||
Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
(46.5) |
2.1 |
9.3 |
1.0 |
0.0 |
0.0 |
||
Operating Profit |
25.9 |
86.1 |
91.7 |
84.5 |
83.1 |
89.7 |
||
Net Interest |
(9.9) |
(9.9) |
(5.0) |
(4.2) |
(3.5) |
(3.0) |
||
Other finance adjustments* |
(1.6) |
(1.7) |
(1.1) |
(0.6) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
62.5 |
74.1 |
77.4 |
79.3 |
79.6 |
86.7 |
Profit Before Tax (FRS 3) |
|
|
14.4 |
74.5 |
85.6 |
79.7 |
79.6 |
86.7 |
Tax on norm PBT |
(13.9) |
(17.0) |
(17.4) |
(15.6) |
(16.7) |
(18.2) |
||
Profit After Tax (norm) |
48.6 |
57.1 |
60.0 |
63.7 |
62.9 |
68.5 |
||
Profit After Tax (FRS 3) |
0.5 |
57.5 |
68.2 |
64.1 |
62.9 |
68.5 |
||
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 |
16.3 |
16.1 |
17.5 |
EPS - (IFRS) (p) |
|
|
5.2 |
19.1 |
18.2 |
16.1 |
16.1 |
17.5 |
Dividend per share (p) |
4.5 |
5.6 |
6.5 |
7.3 |
8.1 |
8.8 |
||
Gross Margin (%) |
42.2 |
43.9 |
44.4 |
41.8 |
42.7 |
43.2 |
||
EBITDA Margin (%) |
16.4 |
17.1 |
17.0 |
17.1 |
16.7 |
16.9 |
||
Operating Margin (before GW and except.) (%) |
10.2 |
11.4 |
10.9 |
11.1 |
10.6 |
11.0 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
613.3 |
607.2 |
614.1 |
606.0 |
611.4 |
615.4 |
Intangible Assets |
390.2 |
395.7 |
404.3 |
411.5 |
412.5 |
413.5 |
||
Tangible Assets |
217.5 |
204.0 |
202.0 |
187.9 |
190.9 |
193.9 |
||
Deferred tax/other |
5.6 |
7.5 |
7.8 |
6.6 |
8.0 |
8.0 |
||
Current Assets |
|
|
87.9 |
123.4 |
100.5 |
107.4 |
106.7 |
106.6 |
Stocks |
3.1 |
2.8 |
2.9 |
2.8 |
3.2 |
3.4 |
||
Debtors |
37.7 |
31.0 |
36.6 |
25.6 |
30.0 |
35.0 |
||
Cash |
47.1 |
89.6 |
61.0 |
79.0 |
73.5 |
68.2 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(168.4) |
(309.4) |
(173.9) |
(186.2) |
(184.5) |
(189.0) |
Creditors (incl provisions) |
(164.0) |
(184.5) |
(159.5) |
(151.6) |
(170.0) |
(174.0) |
||
Short term borrowings |
(4.4) |
(124.9) |
(14.4) |
(34.6) |
(14.5) |
(15.0) |
||
Long Term Liabilities |
|
|
(290.5) |
(126.8) |
(188.1) |
(136.6) |
(130.0) |
(90.0) |
Long term borrowings |
(179.7) |
(17.6) |
(87.8) |
(57.0) |
(50.0) |
(20.0) |
||
Other long term liabilities |
(110.8) |
(109.2) |
(100.3) |
(79.6) |
(80.0) |
(70.0) |
||
Net Assets |
|
|
242.3 |
294.4 |
352.6 |
390.6 |
403.6 |
443.0 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
55.0 |
146.6 |
110.2 |
116.3 |
125.1 |
131.7 |
Net Interest |
(8.1) |
(7.5) |
(5.0) |
(3.0) |
(3.0) |
(2.5) |
||
Tax |
(19.1) |
(2.2) |
(31.1) |
(14.7) |
(15.9) |
(17.3) |
||
Capex |
(44.3) |
(31.9) |
(52.7) |
(42.7) |
(52.0) |
(52.0) |
||
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) |
(26.0) |
(30.9) |
(33.6) |
||
Net Cash Flow |
(32.6) |
85.4 |
14.9 |
29.9 |
23.3 |
26.3 |
||
Opening net debt/(cash) |
|
|
104.1 |
137.0 |
52.9 |
41.2 |
12.4 |
(9.0) |
HP finance leases initiated |
(2.3) |
(3.1) |
(2.8) |
(1.3) |
(2.0) |
(2.0) |
||
Other |
2.0 |
1.8 |
(0.4) |
0.2 |
0.0 |
(0.0) |
||
Closing net debt/(cash) |
|
|
137.0 |
52.9 |
41.2 |
12.4 |
(9.0) |
(33.2) |
Source: Rank Group accounts, Edison Investment Research. Note: *Revenue is before customer incentives.
|
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