Rank Reveals 'Litany of Woes'

First-half revenue for Rank Group, the Maidenhead land-based and Internet gambling operator, fell nearly 10 percent on tough tax rates, a slowdown in consumer spend and lower casino and bingo admissions.

Against the first half of 2007, group operating profit fell by 39.7 percent to £28.9 million with like-for-like revenue down 10.3 percent.

Worst hit was Mecca, the company's chain of bingo outlets, with revenue down 16.9 percent to £110.1 million. Revenue for Grosvenor, Rank's land-based casino operation, dropped 7.1 percent to £102.2 million

"Conditions in the industry have worsened, trading has faced a recent downbeat and Bingo has had particular problems in the U.K.," Jeffrey Harwood, an analyst with Oriel Securities, wrote in a research note Thursday.

Blue Square, its online gambling arm, grew revenues by 3.1 percent to £27 million, though operating profit was down slightly, reflecting a second quarter beset by lower stake levels as well as the absorption of start-up costs associated with non-domestic operations.

"Blue Square is focused on strengthening its position in the highly competitive UK market and targeting growth opportunities for interactive sportsbook and bingo in a number of overseas territories," Ian Burke, chief executive of Rank, wrote in the company's results.

Rank's shares, currently valued at 75.5 pence, trade on a price-to-earnings ratio of 17.1, though Numis Securites, a brokerage in London, suggests this ratio will fall to 13.1 by December 2008.

Analysts believe double-taxation on bingo, whereby revenues are submitted to value added tax and gross profits tax, as well as the smoking ban will continue to put negative pressure on share value.

"We retain our 72p price target, but only given the stake building and substantial shareholding of Guoco (now at 18.1% from 6% in February 2008)," James Hollins, an analyst with Daniel Stewart & Co., wrote in a research note Thursday.

Mr. Burke described his company's outlook on the remainder of the 2007 fiscal year as cautious, given "uncertainties surrounding consumer confidence, both in the UK and in Spain.

"We will continue to address our efforts towards managing the short-term pressures on the Group while retaining our focus on the longer term growth opportunities," he added.