A weak Q416 for Rank Group (LON:RNK) left final results a tad below our forecasts despite good results in Mecca venues and Grosvenor digital. However, cash generation was strong and the dividend was lifted by 16%.
The organic growth strategy (focusing on multi-channel development) remains intact, and while the failure to progress what would have been a transformational acquisition of William Hill (LON:WMH) (with 888 Holdings (LON:888)) was a disappointment, it demonstrates the scale of management’s ambitions.
We suspect that future accretive opportunities will arise within the consolidating online gambling space.
Swings and roundabouts, strong cash flows
FY16 normalised EPS increased 5% to 15.4p (Edison estimate 15.7p) with a 2% decline in operating profit offset by lower net interest. Divisional progress was mixed, with Mecca retail performing very well but Grosvenor casinos affected by an industry-wide weak Q4 (trends are reported to have normalised so far in Q117).
Digital was the other way round, with Grosvenor digital gathering momentum, with sports and poker soft-launched in the period and operating profit up 71%, while Mecca’s platform migration caused some disruption in Q416 as had already been flagged.
Improved cross-selling remains a key opportunity for Rank, which only generates 13% of its revenue from digital versus almost 40% for the UK market. We have trimmed our FY17 forecasts to reflect the lower base and now forecast EPS of 16.2p (previously 16.7p). Net debt fell by 22% in FY16, to £41.2m.
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