Rank
Group: Owners of Mecca Bingo and Grosvenor Casinos, the company is a
conundrum for investors. To look at the operations is one judgement, but you
also have to contend with the Malaysian Hong Leong group. It owns a near 69%
stake, whilst the M&G/Prudential’s near 7% means that Rank breaches the
UKLA free float rules for a premium listing. That quote only continues thanks
to an UKLA dispensation. So that premium listing could be lost at some point
and in the absolute extreme the quote full stop could be lost, leaving minority
shareholders unprotected. The dilemma for outsiders though is that Rank seems
to be doing quite well and is worthy of a look.
The interims to 31st
December 2014 were helped by the cut in bingo duty from 20% to 10% and show
revenue up 3%, adjusted pre-tax profit up 29% and adjusted eps up 34%. As well
as the £8.1m rise in pre-tax profits, £5.6m was saved on the tax line. They
comment that the new Remote Gaming Duty cost £0.8m in December, simplistically
pointing to an annualised £9.6m total. Cash generation has been good, with a
£72.8m operating inflow and net debt has come down to £94.9m from £135.1m a
year ago. The interim dividend has been raised by 19% to 1.6p. At the same time
the group has begun ramping up capex in both casinos and bingo, as they invest
for the future and meet pledges made as part of the bingo tax lobbying. Peppered
through the statement are references to new digital platform investments and
initiatives, in partnership with the up and coming Newcastle-based Bede Gaming.
The £25.2m VAT reclaim case rumbles on with HMRC ahead on away goals and the
next appeal due to be heard on 21st April.
The stock is no longer that well
covered by analysts, but on limited consensus for the year to 30th
June 2015, 14p of eps looks do-able, being a PE of 12.6x at 176p, (the shares
having spiked up 10p or so). After the interim dividend hike, an optimist could
punt at a (still well covered) full year dividend of 4.8p, producing a yield of
2.7%. The shares were right up against the 170p-ish top end of the recent trading
range but have now broken out. It is difficult to see where more momentum comes
from, although a VAT win could generate some excitement. If you are willing to
risk being caught in a Malaysian check-mate then the stock is worth a look. (Neil Cumming,
2nd February 2015)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk Twitter: @DividendPower
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