Rank Group (LON:RNK) has a unique opportunity to leverage leading UK high street casino and bingo brands online. With platform issues resolved, its digital casino is growing strongly and the introduction of a single wallet later this year could be a game changer. Economic pressures are weighing on venues’ results, but they are highly cash generative. An expected move into net cash by end FY18 underpins a progressive dividend policy and gives Rank plenty of firepower to participate in industry M&A as opportunities become available. The calendar 2017e EV/EBITDA of 6.6x looks very low.
Multi-channel is Rank’s competitive advantage
Rank is the leading UK casino operator and number two in bingo. Yet it only has 2% of the UK online casino market. After some delay its new gaming platform is performing robustly and H118 should see the launch of its single wallet, giving much better cross-sell opportunities. We expect Digital operating profits to grow at 18% pa between FY16 and FY19 (to £23m). We assume a flat outlook for venues against a tough consumer backdrop, but Grosvenor would benefit from the current triennial review if it is allowed to add more gaming machines, while a clamp-down on betting shop FOBT machines (as mooted) would be competitively helpful.
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