Rank's target price cut at Canaccord over challenging outlook

Group revenues at Rank were flat in its first trading half, but began to head south in the three months leading to 31 March, as poor performances from its London Casinos helped drive group revenues down 2% year-on-year.

Grosvenor Casinos was down by 9% in its third quarter, impacted by lower admissions and a £1.5m hit from VIP players, something Canaccord said should even out, in the long run, but it was also clear to its analysts that Grosvenor was still under-performing in London, and pricey refurbishments at two of its major properties in the capital had yet to deliver the uplift in activity Rank had anticipated.

Rank's digital operations continued to perform well through its most recent trading quarter, revenues up by 17%, in line with Canaccord's expectations, and despite Mecca Bingo remaining soft, down by 2%, tight cost control has kept it "very much on track" in profit terms.

Overall, management expects full-year operating profits to be in the vicinity of £76m to £78m, versus Canaccord's previously forecast £82.5m figure, leading the broker to reiterate its 'hold' rating on Rank, but drop its price target on its stock from 255p to 200p.

"This is another disappointing trading update from Rank," wrote Canaccord analyst Simon Davies. "The backdrop for its land-based venues is challenging, with a weak consumer spending backdrop, tightening regulation, and in the case of London Casinos, some strong competition - Hippodrome, Aspers Stratford etc."

"And while the impact from weather/VIPs should be non-recurring, we think it is going to take time for the new management to drive an underlying recovery," Davies concluded.