- Operating profit at top end of previous guidance
- Like-for-like revenue up 16% in first six weeks
- Dividends to restart ‘as soon as circumstances permit’
Casino and bingo operator Rank (RNK) delivered in-line results for the year to 30 June 2023, with operating profit at the top end of its previously-guided £15 million to £20 million range implying a stronger second-half performance.
The Mecca bingo and Grosvenor Casinos owner with operations in the UK, Spain and India also reported a strong start to the new financial year ‘across all of the businesses’.
But a swing from profits to a statutory loss and the decision not to restore dividends just yet kept a lid on gains, with Rank’s shares rising by a meagre 0.2% to 89.6p.
OPERATING PROFIT TOPS EXPECTATIONS
Impairments and higher costs pushed Rank from pre-tax profits of £73 million to a statutory pre-tax loss of £122.7 million, but Rank generated like-for-like operating profit of £20.3 million, at the top end of previous guidance, on encouraging 6% growth in net gaming revenue (NGR) to £681.9 million.
Operating profit was 52% down on the £42.5 million delivered in the prior year, and the £100 million generated before the pandemic, reflecting a difficult market backdrop and ongoing wage and energy cost inflation.
BRISK BUSINESS BUT LONDON STILL CHALLENGING
Rank also reported strong current trading, with group like-for-like revenue up 16% in the opening six weeks of the year including 17% growth in Grosvenor venues net gaming revenue driven by the regions, which offset challenging trading conditions in the London market. Mecca revenues rose 17% in the first six weeks, while Digital revenues grew by 13%.
Shore Capital analyst Greg Johnson explained that wet weather in July and early August will have been beneficial to Rank - downpours probably forced people to look for indoor entertainment - as was the timing of the Goliath poker tournament.
Johnson sees the recent performance as ‘very encouraging, continuing the momentum in H2 and supportive of current year estimates. Recovery in London remains the key delta although trading here remains frustrating’.
There was also mild disappointment that Rank decided not to recommence dividends, ‘taking account of the continued challenging trading environment and the strong pipeline of investment opportunities to drive revenue and profit growth’, although the board expects to restart dividends ‘as soon as circumstances permit’.
WHAT DID THE CEO SAY?
Chief executive John O’Reilly said: ‘The return of customers to our Grosvenor and Mecca venues continues to pick up and our second half numbers give cause for optimism after a very challenging couple of years. During that time, our UK venues have faced a surge in energy costs, high wage inflation, a tightening in the regulatory environment, the slow return of overseas visitors to London’s casinos and the more general pressures on the consumer’s discretionary expenditure.
‘However, energy costs have stabilised, inflation appears to now be easing, customers continue to slowly return to both our Grosvenor and our Mecca venues and we now expect to deliver good levels of revenue and profit growth.’
THE SHORE CAPITAL VIEW
Johnson at Shore Capital commented: ‘We conservatively keep our estimates unchanged at this stage and longer term see both an attractive recovery play and Rank as uniquely positioned for the proposed gambling changes in the UK. We do not believe that this opportunity is being reflected in the price.’
As Shares outlined here, big changes are on the cards for the UK gambling sector following publication of the Government’s white paper in April which seeks to deter problem gambling and apply more onerous online affordability checks.
Yes, it means margins will take a hit across the board. However, Rank should see a revenue benefit as the new regulations level the playing field between online and land-based operators.
As O’Reilly explained in today’s results: ‘The UK Government’s white paper on gambling reform sets out a number of important public policies which will enable the land-based bingo and casino sectors to modernise the customer proposition to better meet the needs of today’s consumers. The delivery of the secondary legislation to enable these reforms cannot come soon enough and we are well advanced with plans to maximise these opportunities.’
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