Cost pressures, but good digital progress

Interims reflected high street cost pressures (EBITDA -5%) and we have trimmed FY17e EPS by 2%. However, Digital’s 11% revenue growth was very encouraging, with an acceleration in Q2 as platform problems were ironed out. The core argument for Rank remains intact: scope to materially grow in Digital via better cross-sell of its land-based brands. Despite a lacklustre short-term profits outlook, the group remains highly cash generative, which underpins a progressive dividend policy and FY17e yield of 3.7%. The FY17e EV/EBITDA is only 6.2x, 37% below the peer average.