Rank Group shares slide as operator issues second profit warning in three months
Shares in Rank Group tumbled double digits this morning (20 June) after the operator published another profit warning to investors.
Rank Group had already issued investors with a trading update in April, which showed that its revenue levels during the three months ended 31 March 2022 – Q3 of Rank’s 2021-22 financial year – remained below pre-Covid levels across all business areas.
That update saw the firm’s share price slip from around 128p to around 107p. Today however, the operator began trading more than 17% down on yesterday’s close.
This morning, the firm’s share price fell as low as 82p – the lowest price since 2020.
Rank told investors that following weakened performance in the first months of the year, the performance of its Grosvenor Casino brand had begun to improve since April. However, that improvement was considerably weaker than expected, it explained.
This, it said, was principally due to a slower-than-expected return of high-spending, international visitors to the firm’s London-based casinos, continued softness in visitor numbers across the UK, and a lower-than-average casino win margin in the quarter to-date.
Performance across other business segments – principally Rank’s Mecca Casino brand in the UK and Enracha in Spain – has been broadly in line with management expectations, the business said.
Subject to normal casino win margins between now and the end of its financial year (30 June), Rank said it now expects like-for-like underlying operating profit (EBIT) for the year to total around £40m, lowered from previously issued guidance of £47m-£55m.
The firm’s preliminary results for the 12 months ending 30 June are expected to be released in August.
Peel Hunt analyst Ivor Jones: “It appears that key customers intend to return as soon as July, but it is hard to predict with certainty. A large minority of Grosvenor’s London revenue is generated from customers who are primarily based overseas.”
In a note sent to investors today, Peel Hunt analyst Ivor Jones announced a lowered target price for shares in Rank Group – reduced from 220p to 175p – but reiterated a Buy recommendation while the firm’s share price remains low.
The analyst also reduced financial year 2023 EBIT expectations from £91m to £77m.
Jones said he expects to revisit these expectations following the release of preliminary results in August, at which time Rank management will comment on initial trading during the start of financial year 2023.
Rises in visitor numbers, normalised casino margin, and the return of international and high-staking customers to Grosvenor venues will all be key metrics to look out for, which may signal an upturn fortunes.
Jones remained cautious with regards to the company’s recovery, however. “Overseas visitors to Grosvenor should come back, but Covid-19 restrictions remain in place in some key source markets and there have been other local disruptions,” he said.
“It appears that key customers intend to return as soon as July, but it is hard to predict with certainty. A large minority of Grosvenor’s London revenue is generated from customers who are primarily based overseas.”
Jones noted that domestic UK customers are also being impacted by macroeconomic factors currently affecting general consumer spending, while casino venues are being impacted by behavioural changes being felt across the night-time economy.
One key change which could help the business get back on the path to growth is an increased focus on Rank’s digital business division.
The firm’s online brands should complete their delayed migration onto an in-house platform this summer, Jones said.
Last month, Peel Hunt told investors that while Rank’s digital division accounted for just 9% of group EBIT in H1 2022, that figure could rise as high as 33% by financial year 2024.
The operator’s digital offering “is a major part of the Rank investment case,” according to Peel Hunt.