Digital growth offsets Venues decline

Rank Group’s FY17 results highlighted the growth potential of its Digital division. Online revenue grew 15.3%, with an impressive operating margin of 20.4% (vs our 14.2% estimate). By contrast, Venues were slightly light, with like-for-like revenues declining by 0.7%, due to fewer customer visits and tighter due diligence. However, Venues’ KPIs have improved in H2 over H1 and FY18 has started well. Our headline revenue forecasts are broadly unchanged, although we have lowered our FY18 operating profit by 2.2%, as result of higher employment costs in Mecca. We continue to anticipate a move into net cash in FY18, underpinning Rank’s progressive dividend policy. Trading multiples are attractive, with CY18e EV/EBITDA of 6.8x, P/E of 13.7x and free cash flow yield of 8.8%.