Rank Group: Operational Efficiencies Keep Forecasts Intact
Edison | Feb 01, 2018 04:47AM ET
Similar to last year’s trends, Rank Group (SG:RNK) reported that total Venues l-f-l revenues declined by 1%, mainly due to lower customer visits. This was offset by a 16% increase in Digital, where Mecca digital has clearly turned the corner. To reflect the lighter result in Venues, we have lowered our FY18 and FY19 revenue estimates by c 2-3%, but improved operational efficiencies mean that our profit forecasts are largely unchanged. The business model remains highly cash generative, with £4m net cash achieved at H118 and the stock’s trading multiples are attractive at 6.8x EV/EBITDA, 13.6x P/E and 8.1% free cash flow yield for CY18.
16% y-o-y digital growth
UK digital revenues increased by 16% y-o-y to £60.6m, split 40/60 between Grosvenor and Mecca digital, which grew by 27% and 9% respectively. Sequentially, grosvenorcasinos.com was flat vs H217, but we are encouraged by the sustained growth in Mecca digital, suggesting that previous platform complications are now fully resolved. The new point of consumption tax (POCT) on free bets affected profits by c £1m, leading to a H118 digital operating margin of 18.8%, compared to 13.9% in H117 and 26.1% in H217. A mecca TV campaign launched in December is expected to boost H218 revenues and we now anticipate FY18 digital revenues of £128.6m, with an operating margin of 18.6%. This compares to our previous digital estimates of £132.4m and 18.8% margin.
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