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Don't bank yet on dank Rank

By Chris Bailey | Thursday 5 April 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Do any of the readership base want to admit to still going to the bingo? Well if you do then it is probably at one of Rank (RNK)’s Mecca emporiums as they attracted just shy of 5 million customer visits during its first half year with each punter spending just over twenty quid a visit. Customer visits were down 8% year-on-year though in the stats released a couple of months ago despite the wonderful RNS observation that:

'Mecca continued with its experiential bingo events (Batty Bingo, Bonkers Bingo and Big Bingo Bash) in the period, these events are not key drivers of profit but are successful in broadening the appeal of retail bingo. Mecca continues to experiment with broadening the reach of retail bingo with a planned Bonkers Bingo themed minicruise, in partnership with P&O Ferries'

I start with this preamble as earlier today the UK's self-styled 'leading multi-channel gaming operator' had a bit of a shocker in a trading update centred on both key parts of its business going wrong, namely:

'UK venues businesses have been impacted by weaker than expected visits which have been compounded by two periods of cold weather. Grosvenor Casinos' underperformance has also been exacerbated by a negative contribution from its VIP players'

Let's take these in turn. There is no doubt that cold weather is not great news for bingo given the demographic that is entertained by And the switch to digital play takes time and frankly is not fully offsetting. However, even worse news is coming from the Grosvenor Casino brand which over recent times has been a bigger profit contributor than the bingo business. The comment above sounds to me as if the high rolling customers have actually taken money off Rank. Ooops!

This is just how it goes sometimes in gaming businesses. Over time we all know that 'the House' tends to win but the ability to keep the overall ship moving forward has had one casualty already with the announcement last month of the CEO deciding to cash his chips in and move to online name Shop Direct.

So the shorter-term mood music is not the greatest. Rank is fortunate to have relatively little debt and we all know that both the weather and the success quotient of 'the House' will turnaround but honestly I would not pay more than x8 operating earnings for that given. It has talked today about 'full year operating profit to be in the range of £76m-£78m' but, with the prelims miles away in August, anything can happen shorter-term.

I note on the longer-term chart that around 160p has been a point of support/resistance a few years back and this level is consistent with my preferred earnings multiple. So I would chill at the moment, await a share price closer to this level and free up some time to do something going to the bingo in the name of 'research'.

Don't worry, you know I will write it up fully here if I do!

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