I last wrote about gaming services provider Rank (LSE: RNK) in May with a positive article praising the firmâs dividend potential. Straight away, let me come clean and admit that the share price has slipped almost 6% since then, from 160p to around 151p now.
However, I find todayâs full-year results report to be encouraging, and the icing on the cake is that the directors pushed up the total dividend for the year by 3% on the back of a figure for net cash from operations that rose 10% compared to the year before. Indeed, cash is flowing into the business and this year the firm posted a net cash balance of ÂŁ1.8m, which compares to net debt of ÂŁ9.3m on the balance sheet a year earlier.
A defensive sector
One of the main attractions for me is that Rank operates in what I think of as a defensive sector. Indeed, the firmâs gaming and gambling operations make the firm something of a âsinâ stock along with the likes of tobacco and alcoholic drinks producers. The argument goes that customers rarely tend to reduce spending on such âessentialsâ regardless of how tough general economic conditions become.
And why should they? A little bit of a night out to the bingo is hardly a crime, and it can provide social benefits that help to keep people healthy and happy. As long as the regulators donât meddle too much with the sector in the future, I reckon Rank looks like a solid investment proposition.
Like-for-like revenue came in essentially flat, but thatâs not the whole story. Within that figure, sales in the traditional bricks-and-mortar venues slipped 2% and digital net gaming revenue moved 11% higher. Sales are gradually migrating online, it seems, in a familiar story that is playing out across several industries.
Around 20% of overall operating profit came from digital income, which is a significant number. If digital sales keep growing by double-digit percentages, such emerging growth could start to move the dial on overall earnings, which came in essentially flat in this reporting period.
Strong second half
The second half of the trading year delivered a better result than H1 with âall businesses delivering like-for-like revenue growth.â H2 operating profit shot up 20% compared to the first half, which suggests the firmâs focus on cost-control is starting to bear fruit. Indeed, a âtransformation programmeâ started at the end of 2018 with the aim of improving the companyâs performance and developing new ways of working.
Nipping and tucking of operations include an agreement to sell five of firmâs Mecca bingo clubs and a commitment to acquire Stride Gaming, which will help the expansion of the online gaming business. It seems to me that Rank is making moves to align its operations with fast-growing areas and to reduce its exposure to assets that are under-performing.
The directors said in the report that the current trading year has started well, and Iâm optimistic that the overall business is turning around. Meanwhile, the forward-looking earnings multiple for the current trading year to June 2020 sits just below 10, which strikes me as undemanding.