UK Edition
Questor: Review of gaming industry may bring new opportunities for Rank’s casinos
Rank: £2.11
Questor says hold
It would seem there will be no winners emerging from the government’s review of the gaming industry. Delayed for the election, a consultation paper is expected to contain the same tough language sports minister Tracey Crouch has already directed at bookmakers. The object of her ire is the epidemic of fixed-odds betting terminals, labelled the “crack cocaine” of gambling, where a campaign is underway to cut the stakes of £100-a-spin games to as little as £2.
The government has a love-hate relationship with gambling, an industry which contributes more than £10bn to the economy. That is why there could yet be some beneficiaries of this review.
Casino operators were once the scourge of the industry. But times have changed. Now a reasonable plan has been advanced to assimilate the majority of casinos licensed under the 1968 Gaming Act with the handful that opened under the 2005 Act. With the spin that they offer closer supervision of punters than the bookies, the upshot is that small venues may be able to quadruple the number of slot machines per site from 20 to 80. In the digital age, one-armed bandits sound quaint but remain popular.
Sound the gong. Such a move would herald great news for Rank, the one-time entertainment conglomerate that now has the country’s largest casino chain through its Grosvenor Casinos division. There is more to life than blackjack and craps it seems. Gaming machines account for £180m or 19pc of annual revenues for the industry, growing from 15pc in 2014. For Rank, they contributed 23pc of the takings at its UK casinos in the first half of the year, rising 3pc while casino games fell 4pc and food and drink dropped 6pc.
The company could do with some good news. Grosvenor operating profit fell 16pc in the six months ending in December. Not only did the minimum wage and higher property costs bite, but a crackdown on money laundering depressed visitor numbers because managers were forced to collect punters’ financial details. It was a similarly subdued story at Rank’s Mecca Bingo arm where operating profit was off 7pc.
It would be a gamble to invest ahead of a regulatory shake-up but whatever happens there are big changes ahead. Tougher rules and smaller profits will herald a new round of consolidation in the sector.
Merger activity has already seen Paddy Power get together with Betfair and Ladbrokes pair off with Gala Coral. Rank and 888’s consortium approach to William Hill last August was not successful but Henry Birch, Rank’s chief executive, has made it clear he is still on the lookout for the right deal.
And then there is the largely untapped digital opportunity. Only 3pc of Rank’s venue customers are also digital customers but more than 50pc gamble online with a competitor. The introduction of a “single wallet” in the summer may improve that. Given negligible debt levels, Rank’s dividend is on an upward curve. Trading at 14 times this year’s forecast earnings, the shares are worth holding.