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ShoreCap downgrades Rank to 'hold' after profit warning

Shore Capital downgraded Rank Group to 'hold' from 'buy' on Thursday after the casino operator warned that full-year operating profit would come in between £76m and £78m, down from £83.5m the year before and below consensus expectations of around £83m.

The brokerage, which had been expecting FY operating profit of £80m, said the update for the 13 and 40 weeks to 1 April was "disappointing", with group like-for-like sales down 2% in the 13 weeks, making the 40-week figure flat against its full-year expectations of modest growth.

"We continue to see significant attractions in Rank's asset base, the multi-channel opportunity and the potential to use its balance sheet for inorganic growth. However, with trading in its retail offering soft and limited visibility over inorganic expansion, especially given the recent resignation of CEO Henry Birch, we see little positive catalyst to the share price short-term."

On the plus side, though, it said the digital business continues to perform strongly, with revenue up 17% for both periods, sustaining the momentum seen in recent times.

"We expect the launch of the single wallet, due calendar H2, to be a further positive catalyst as it looks to exploit its near three million land based members," Shore said.

Shore cut its 2018 pre-tax profit estimate by £5m to £75m. For 2019, it assumes a modest recovery, driven by further robust digital growth, to £77.5m from £83.8m.

At 1350 BST, the shares were down 16% to 180.04p.

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