Once a giant of the British film industry, Rank Group is now happy simply to capture hearts on Mother’s Day. “It’s our biggest day in the entire year,” according to John O’Reilly, the chief executive. “People take their mum to bingo, which shows you what the Mecca business is all about. We give a free box of chocolates to every customer.”
The long journey from film, photocopiers, holiday camps and nightclubs to bingo and casinos was almost complete when Rank was knocked sideways by Covid and the subsequent economic turmoil. Perhaps this will be the year when Rank gets its act together.
It has been nudging customers from bingo to the younger fare of casinos and online gaming. In the latest half-year to the end of December, Mecca pulled in only 18.5 per cent of the group’s total revenues and broke even. The biggest contributor was Grosvenor Casinos, with 46.2 per cent and two thirds of the £21.6 million operating profit from roulette, blackjack and other games. Digital provided 30 per cent of revenue and a £10 million profit.
Rank had too many small bingo venues, which meant smaller prizes as the rewards are linked to the number of players. So Rank has closed 21 Mecca venues since 2021, taking the chain to 55 venues. Two more will go in the next few months.
At Grosvenor venues, customer visits in the half-year grew by 8 per cent and spending per visit was 2 per cent higher. But this is not high-roller territory (few stakes top £10 per spin), so the number of people coming through the doors is vital.
Rank’s immediate fortunes are pinned on the upcoming Gambling Act and the extent to which it will liberalise machine betting. O’Reilly hopes it will let the Grosvenor chain double its machine population, allow debit card payments in casinos and bingo and replace the current limits in bingo halls on B3 machines, which carry a £2 top stake, higher than on other permitted devices. Online, Rank wants the maximum stake to be raised to £5, which could be worth £4 million to its annual profit.
The other issue is whether the new law will allow the extension of sports betting from betting shops to casinos. “Not every sports better visits a casino, but every casino customer bets on sports,” O’Reilly said.
He has a three-part plan: first, invest for growth; second, match investment with cash generation 18 months to three years out; and third, from year four, pull back investment to let shareholder returns increase. Overseas, Rank operates in Spain and Belgium and is moving into Portugal this year. Subject to local laws, there is no reason why in the long run it cannot roll out its business model worldwide.
A key question for prospective shareholders concerns the intentions of Quek Leng Chan, the Singaporean billionaire who owns a controlling 57 per cent of Rank’s shares through Hong Leong, his Malaysian firm, and has been buying since 2008. Institutions hold another 30 per cent, so the stock is tightly held. That means a rise in “buy” orders is likely to send the shares disproportionately higher, and vice versa.
Rank shares have never recovered from their pre-Covid 325p peak, but, despite a flat UK economy, revenue for the year to June may for the first time exceed 2019’s £695 million, paving the way for a return to at least a nominal dividend.
Ivor Jones, at Peel Hunt, forecasts a £44 million profit this year “even without extra slot machines”. That would double the half-year profit, which would put the shares on a manageable 13.2 prospective price-earnings ratio.
This is a critical year for the group. Will people open their wallets in the present squeeze — and, if they do, will it merely increase competition? Rank could face some stern tests.
Advice Buy
Why Although patience may be required, it should be rewarded
Filtronic
Last week’s interim report from Filtronic showed why the telecoms equipment maker’s shares should be treated with considerable caution. The £522,000 net half-year loss on revenue virtually unchanged at £8.5 million turned into £200,000 profit before interest, tax and other charges, down from £1 million previously.
That may be a blip or, as Jonathan Neale, the chairman, said, the “timing of major project decisions and order placement may span financial years, resulting in a growth trajectory that may sometimes be non-linear”.
Only days after the November 30 end of the half-year trading period, the shares shook themselves out of a long slumber to rocket to 40p, the highest level since 2014. As if by magic, the company paraded a slew of good news in December and the new year. These included £12.6 million of additional contracts from low-earth orbit satellite communications equipment, a £4.5 million contract from BAE for a shipborne radar system and a £2 million gig from QinetiQ for a vehicles or helicopter radio-frequency subsystem. It added that global uptake of 5G infrastructure had triggered a “relentless demand for bandwidth driving technology”.
Consequently, Neale lit a metaphorical cigar and declared: “We are encouraged by the recent successes. The impact is expected to be revenue ahead of full-year market expectations and profitability materially ahead.”
Given that the 2023 basic earnings were 0.22p a share, if it reaches even 0.5p this year the price-earnings ratio will still be a breathtaking 80. So there is considerable hope value in the shares and some investors clearly have decided that the company has turned a significant corner.
It is an exciting business, with plenty to go for, but Neale’s warning about contracts spanning financial years suggests there may be big fluctuations. Last year Filtronic’s cash and cash equivalents fell from £4 million to £2.6 million, returning to £4 million by the end of November. It has £1.7 million deferred income, more than a tenth of last year’s revenue, conditional on satisfactory contract performance. Dividends, of course, are off the table.
Advice Hold
Why For only for the nimblest investor
