This week’s free share tip is Rank Group. The company has provided a couple of updates this month ahead of releasing results for the year ended 30 June 2021 on 19 August.  It is clear that this was an exceptionally difficult period for the business but the corner should have been well and truly turned and the current financial year could see performance to make the current share price look too low with the benefit of hindsight.  On balance we believe that now is a good time to take a calculated risk and invest.

The company is best known as the owner and operator of Mecca Bingo halls and Grosvenor Casinos.  It also has a number of Enracha bingo clubs in Spain and YoBingo is the largest digital bingo brand in the same country.  A range of other brands mean that digital is now a significant part of the business, both in terms of turnover and profit.

On 1 July the company noted that trading in the first six weeks following the reopening of venues was in line with management’s expectations.  Venues were said to be trading above cash breakeven and trading was expected to continue to improve as social distancing and international travel restrictions are eased, as well as the removal of the 10.30pm curfew in Scotland.  Performance in digital businesses in the final quarter was at a level between that achieved in Q2 and Q3.  The company expects to continue to meet all future liquidity and financial covenant tests.

The first scheduled term loan amortisation payment of £19.7m was made as expected in May.  Rank Group also highlighted the fact that there has been a ruling in its favour by the First-Tier Tax Tribunal on its claim to be refunded VAT paid on slot machine income in the period from April 2006 to January 2013.  HMRC has 56 days to lodge an appeal and the parties also have the same amount of time to agree the exact value of the claim.  This should be materially in line with previous estimates of around £80m.

On 7 July the company announced that it had signed a new two year £25m Revolving Credit Facility agreement with Lloyds Bank.  This provides additional liquidity and the opportunity to accelerate investment in a transformation plan at the appropriate time.  The new facility is subject to the same financial covenant waiver and associated conditions that are in place across the company’s other bank facility agreements, including a quarterly minimum £50m cash and available facilities test.  This new facility is in addition to an existing £55m Revolving Credit Facility and the remaining £108.4m term loan.

As normality returns the shares, which traded above 300p early last year, should have further to recover.  There is scope for solid upside from the current level and although the results due to be released on 19 August cover a tricky twelve months, there should be an increasing amount of light at the end of the tunnel in the coming weeks.  With some companies listed in the UK also drawing interest from overseas, we feel that this is an attractive opportunity to buy in at a steep discount to 2020 highs. Our free share tip for Rank Group is BUY.

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