I could talk about market heavyweights Diageo (DGE), Royal Dutch Shell (RDSB) or Unilever (ULVR) but frankly none are interesting or compelling...although no doubt dividend munchers are still getting frothy about them. Instead I turn again to the bingo, casino and more emporium Rank Group (RNK) – which I last wrote about in August, observing 'below 160p as a "have another look" level still feels correct. No debt, cashflow, well-known assets...smell the private equity or industry consolidation potential'…
The good news is that despite half-year numbers which show a 1.7% decline in revenues and group operating profit down nearly 25%, the full year outlook was maintained. It even generated a bit more cash (the net cash balance rose to £7.7 million) and the interim dividend per share of 2.15p was held. Looking divisionally, digital revenues continued to grow ('YoBingo! performing ahead of acquisition plan') but the casinos were impacted by shabby weather, 'whale' investors not betting as much and more generally a 'challenging consumer back drop'. And more importantly, the 'transformation programme launched and gaining momentum'. The latter - which hopes to identify £10 million of savings in the company’s fiscal year 2018-19 with a full year benefit of £19 million in FY 2019-20.
Now such a benefit is quite useful for a company which made just over £75 million in operating profit in its last full year. Clearly not all of this will fall through into the operating profit line but it is useful addition at a time of general challenges. It also complements the free cash flow generation capabilities of the business, which I estimate at the thick end of £50 million. For a business with a market cap of just under £600 million, I think Rank today is trading on a single digit multiple with a covered 7% yield. That is not too shabby.
I am still a Mecca bingo virgin and it is a bit of a roll of the dice as to whether Grosvenor casinos will continue to attract the big spending ‘whales’ or not but I do know that transformation spend aka self-help is one way out of the fuzz of an uncertain environment and a prevailing shift from physical to digital offerings. Rank is not so dank after all. Despite a bounce, the share still remains below the 160p level. Worth a punt!
Filed under: Rank Group, Daniel Stewart, Telit, FinnCap, CML Microsystems, ShareProphets readers tips
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