Gaming company Rank's (RNK) profits fell in the half year to December, impacted by flat like-for-like sales in its core Grosvenor Casinos business, rising wages and property costs.
However, CEO Henry Birch (pictured below) appears optimistic about the future, encouraged by improving trends in Rank's retail casino and bingo businesses and the strong growth being generated from its digital businesses.
CHALLENGING BACKDROP
Click here to view half year numbers from the company behind Grosvenor Casinos and Mecca Bingo venues, whose unloved shares weaken another 0.2p to 192.7p on an 8% drop in adjusted taxable profits to £34.5m.
During the half, Birch says Rank encountered 'challenging trading conditions for both our retail casino and bingo businesses, with strong comparable figures in the previous year. That being said, both businesses showed a year-on-year improvement from quarter to quarter.'
Higher taxes and tighter regulations are challenges facing all gambling operators, hence the recent flurry of mergers across the sector. The casino sector in particular has been hit by lower visits, in part reflecting the tightening up of customer due diligence to address money laundering, proceeds of crime and problem gambling.
The positive news is Grosvenor achieved its highest share of admissions in four years in October and has now enjoyed improved trading trends for three consecutive quarters on the spin. Profits were also lower at Mecca Bingo, though a reduction in visits was offset by a higher spend per visit.
DIGITAL DELIGHT & DIVIDENDS
Rank also reports continuing positive momentum in its Spanish operations and digital revenue up 11%, helped by the addition of new content and a restructuring of the digital team. 'Our digital business continues to grow strongly and there remains significant potential for this channel as we deliver improvements in H2,' comments Birch, armed with 'detailed plans to improve H2 operating profit' and confident Rank 'will make good strategic progress in 2017.'
Speaking to Shares earlier, Birch stressed the strong cash flow characteristics of debt-free Rank, proposing an 11% hike in the half time dividend to 2p in a show of confidence.
'We believe the key investment appeal of Rank is in the potential for a transformational M&A transaction or return of capital while investors are paid a healthy and sustainable dividend as they wait and see. The wobble in Venues, while discouraging, was well-flagged and, in our view, is offset by Digital’s growing appeal,' insist analysts Ivor Jones and Douglas Jack.
