Rank Group's (LON:RNK) trading update (13 weeks to 1 April) showed 17% growth in Digital, but the core Venues disappointed, with Mecca down 2% and Grosvenor down 9% on a like-for-like basis. The shortfall was largely due to fewer customer visits, as well as a lower gross win margin from VIPs. The company expects the weaker consumer environment to continue and has now guided to FY18 clean EBIT of £76-78m vs previous consensus of £83m. We have adjusted our forecasts to the lower end of guidance. The stock has dropped sharply on the news and trades at 5.7x EV/EBITDA and 11.8x P/E for CY18e, which is a meaningful discount to peers.
Q3 hit by bad weather and weaker consumer sentiment
Rank’s trading update highlighted that a variety of factors had caused a weaker trading environment in Q318: both Mecca and Grosvenor saw lower than expected visits, made worse by bad weather. In addition, Grosvenor experienced losses from VIP customers and did not see the expected recovery in visits at the two recently refurbished London casinos. On a like-for-like basis, Mecca saw a 2% y-o-y decline for the 40 weeks to 1 April and for the 13 weeks to 1 April; Grosvenor saw 3% and 9% declines respectively, and group revenues were flat and down 2% respectively. Trading for Digital remained strong with 17% growth over both periods.
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