Shares in bingo and casino operator Rank Group (RNK) fell 3.5% in early trading after the group announced results for the 12 months to June revealing the full extent of the damage inflicted on profits by the Covid 19 pandemic and the associated social restrictions.
Rank reported an underlying pre-tax loss of £67 million versus a profit of £48 million in the prior year. Revenues declined by 50%, and the underlying loss per share was 20.3p, compared to positive earnings per share of 6.7p in the pervious year.
This marked deterioration was a direct result of both its Mecca bingo and Grosvenor casino franchises being closed during the pandemic.
CAUSE FOR OPTIMISM
Looking forward, however, there is cause for optimism. Following the reopening in mid-May of both its Grosvenor and Mecca businesses, net gaming revenue has averaged £5.7 million and £2.6 million respectively.
This is well ahead of the breakeven requirement of £4.4 million and £2.4 million per week. Moreover, trading has continued to improve since all restrictions were lifted in mid-July with weekly revenue reaching £6.0 million and £2.7m for the Grosvenor and Mecca franchises respectively.
DIGITAL TURNAROUND
Two factors are likely act as catalysts for an improvement in the performance of the digital division. First, cost savings will contribute to a significant improvement in the operating environment. Second, the Venue players are likely to return.
At 177p, Rank trades on a full year price to earnings multiple of around 12 times and an enterprise value to EBITDA multiple of less than six times.
According to Shore Capital media analyst Greg Johnson, 'This is a sharp discount to the eight-to-nine times EV to EBITDA that the stock traded on immediately prior to Covid, which on a recovery implies upside beyond 250p per share.'
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