Rank Group — Update 10 March 2016

Rank Group (LSE: RNK)

Last close As at 17/07/2024

73.00

0.80 (1.11%)

Market capitalisation

GBP342m

More on this equity

Research: Consumer

Rank Group — Update 10 March 2016

Rank Group

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Consumer

Rank Group

Key milestone reached

New platform launch

Travel & leisure

11 March 2016

Price

247.5p

Market cap

£967m

$1.42/€1.29/£

Net debt (£m) at 31 December 2015

52

Shares in issue

390.7m

Free float

29%

Code

RNK

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.3)

(11.4)

31.0

Rel (local)

(9.0)

(10.1)

43.2

52-week high/low

295.50p

184.50p

Business description

Rank is the UK’s largest multi-channel casino operator with Grosvenor Casinos, and the second-largest multi-channel bingo operator with Mecca. It is also the fourth largest bingo operator in Spain and has two casinos in Belgium.

Next events

Q3 IMS

May 2016

Preliminary results

August 2016

Analysts

Jane Anscombe

+44 (0)20 3077 5740

Eric Opara

+44 (0)20 3681 2524

Rank Group is a research client of Edison Investment Research Limited

The successful launch of its new digital platform, on time and budget, marks a key milestone for Rank and a major step towards its goal of a full omni-channel gaming product offering. Digital channels are the key growth driver for Rank and the new platform already offers new products and functionality, enabling Rank to further leverage its strong land-based gaming brands. After recent profit taking the FY16e EV/EBITDA is only 7.8x, yet the group is delivering good growth and strong cash flows.

Year end

Revenue* (£m)

EBITDA**
(£m)

PBT**
(£m)

EPS**
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/14

708

116.0

62.5

12.4

4.5

20.0

1.8

06/15

738

126.3

74.1

14.6

5.6

17.0

2.3

06/16e

756

130.0

79.0

15.7

6.4

15.8

2.6

06/17e

785

136.0

84.0

16.7

7.4

14.8

3.0

06/18e

807

143.8

90.5

18.0

8.4

13.8

3.4

Note: *Revenue is before customer incentives. **EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, one-off and exceptional items.

Successful platform migration

Rank’s stated goal was to migrate its digital brands from the OpenBet to Bede platform by end March; in fact, the switch-over occurred 11 days ago, with only minor hiccups, which were speedily resolved. The front-end is as yet little changed, minimising the risk of player churn, and already offers new games and payment options, with more to come from game suppliers such as Microgaming, Realistic, and Eyecon. In the iOS store, the new Mecca and Grosvenor apps are attracting favourable 4.5-5 star reviews, while Google Trends shows an encouraging uptick in search interest for Mecca Bingo, a key driver of site traffic. Grosvenor’s new digital poker product (from Microgaming) is now live and its new digital sports book (supplied by Kambi) is due to launch this summer.

Estimates unchanged

Rank reported interim results on 29 January and our forecasts are unchanged from those detailed in our Update report of the same date. We expect 7.5% EPS growth in FY16 and for net debt to decline to £42m by end June (and to have net cash by end FY18 in the absence of any acquisitions).

Valuation: Attractive risk-return profile

After a very strong performance in 2015, Rank shares ran into some profit taking between December and February and are almost 15% off their peak. The FY16e EV/EBITDA is now only 7.8x, well below the peer group average of 9.5x, yet the group is strongly cash generative, with a progressive dividend policy. We have long believed that successful platform migration should be a positive catalyst and while the group still faces technical challenges in its move towards a full omni-channel offering (hopefully by FY18), we believe that yesterday’s announcement is excellent news.

Financial summary

Exhibit 1: Financial summary

£m

2014

2015

2016e

2017e

2018e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

707.7

738.3

756.0

785.0

807.0

Cost of Sales

(409.2)

(414.2)

(426.0)

(447.1)

(460.6)

Gross Profit

298.5

324.1

330.0

337.9

346.4

EBITDA

 

 

116.0

126.3

130.0

136.0

143.8

Operating Profit (before amort. and except.)

72.4

84.0

85.0

89.5

96.0

Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

(46.5)

2.1

6.0

0.0

0.0

Operating Profit

25.9

86.1

91.0

89.5

96.0

Net Interest

(9.9)

(9.9)

(6.0)

(5.5)

(5.5)

Other finance adjustments*

(1.6)

(1.7)

(1.0)

0.0

0.0

Profit Before Tax (norm)

 

 

62.5

74.1

79.0

84.0

90.5

Profit Before Tax (FRS 3)

 

 

14.4

74.5

84.0

84.0

90.5

Tax on norm PBT

(13.9)

(17.0)

(17.8)

(18.9)

(20.4)

Profit After Tax (norm)

48.6

57.1

61.2

65.1

70.1

Profit After Tax (FRS 3)

0.5

57.5

66.2

65.1

70.1

Average Number of Shares Outstanding (m)

390.7

390.7

390.7

390.7

390.7

EPS - normalised (p)

 

 

12.4

14.6

15.7

16.7

18.0

EPS - (IFRS) (p)

 

 

5.2

19.1

17.0

16.7

18.0

Dividend per share (p)

4.50

5.60

6.40

7.40

8.40

Gross Margin (%)

42.2

43.9

43.7

43.0

42.9

EBITDA Margin (%)

16.4

17.1

17.2

17.3

17.8

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

10.2

11.4

11.2

11.4

11.9

BALANCE SHEET

Fixed Assets

 

 

613.3

607.2

617.5

630.0

635.0

Intangible Assets

390.2

395.7

400.0

410.0

415.0

Tangible Assets

217.5

204.0

210.0

215.0

215.0

Deferred tax/other

5.6

7.5

7.5

5.0

5.0

Current Assets

 

 

87.9

123.4

109.0

115.5

119.0

Stocks

3.1

2.8

3.0

3.5

4.0

Debtors

37.7

31.0

35.0

37.0

40.0

Cash

47.1

89.6

71.0

75.0

75.0

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(168.4)

(309.7)

(175.0)

(197.5)

(190.0)

Creditors (incl provisions)

(164.0)

(184.5)

(157.0)

(167.5)

(170.0)

Short term borrowings

(4.4)

(125.2)

(18.0)

(30.0)

(20.0)

Long Term Liabilities

 

 

(290.5)

(126.5)

(195.0)

(139.0)

(94.0)

Long term borrowings

(179.7)

(17.3)

(95.0)

(54.0)

(32.0)

Other long term liabilities

(110.8)

(109.2)

(100.0)

(85.0)

(62.0)

Net Assets

 

 

242.3

294.4

356.5

409.0

470.0

CASH FLOW

Operating Cash Flow

 

 

55.0

146.6

123.0

131.0

138.2

Net Interest

(8.1)

(7.5)

(5.5)

(5.0)

(5.0)

Tax

(19.1)

(2.2)

(30.0)

(16.8)

(18.1)

Capex

(44.3)

(31.9)

(57.0)

(45.0)

(45.0)

Acquisitions/disposals

0.3

(1.0)

6.0

0.0

0.0

Financing

0.0

0.0

0.0

(2.5)

(5.0)

Dividends

(16.4)

(18.6)

(22.7)

(25.8)

(28.9)

Net Cash Flow

(32.6)

85.4

13.8

35.9

36.2

Opening net debt/(cash)

 

 

104.1

137.0

52.9

42.0

9.0

HP finance leases initiated

(2.3)

(3.1)

(3.0)

(3.0)

(3.0)

Other

2.0

1.8

0.1

0.0

(1.1)

Closing net debt/(cash)

 

 

137.0

52.9

42.0

9.0

(23.0)

Source: Company data, Edison Investment Research. Note: *Unwinding of discount in disposal provisions, other financial gains and losses including FX.

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Copyright 2016 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.
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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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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