Rank Group (LON:RNK)
Interims reflected high street cost pressures (EBITDA -5%) and we have trimmed FY17e EPS by 2%. However, Digital’s 11% revenue growth was very encouraging, with an acceleration in Q2 as platform problems were ironed out. The core argument for Rank remains intact: scope to materially grow in Digital via better cross-sell of its land-based brands. Despite a lacklustre short-term profits outlook, the group remains highly cash generative, which underpins a progressive dividend policy and FY17e yield of 3.7%. The FY17e EV/EBITDA is only 6.2x, 37% below the peer average.
Challenging retail trading conditions
Rank’s H117 revenue grew by 1% to £379m (2% l-f-l), but increased inflationary and employment costs left normalised PBT 8% lower at £34.5m. Grosvenor Casinos was affected more than Mecca, partly due to a strong comparative. Management has cut costs across the group and H217 should benefit to the tune of £8m (2.5% of the cost base). Our revised FY17e normalised PBT of £76.0m (previously £78.5m) implies H217 growth of 3.8% and moves us to the lower end of the current consensus. Rank remains strongly cash generative: net debt fell to £33.0m at end December (June 2016: £41.2m) and we expect a further decline to £23.0m by year-end, despite capex being weighted to H217.
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