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ShoreCap upgrades Rank to 'buy' as Stride takes digital earnings higher

Casino operator Rank announced agreed 151p per share offer for online bingo specialist Stride last week

Shore Capital upped its recommendation on Rank to ‘buy’ from ‘hold’

Rank Group PLC’s (LON:RNK) offer for online bingo specialist Stride Gaming PLC (LON:STR) will bring big benefits to the casino operator’s earnings and digital capabilities, said Shore Capital as it upgraded its rating on the shares.

The broker upped its Rank recommendation to ‘buy’ from ‘hold’ as it predicted Friday’s agreed 151p per share offer would effectively double the group's digital revenues, provide “significant synergy benefits” and bring improved technology in-house through Stride’s proprietary platform to support further UK and international growth.

READ: Rank Group confirms around £115mln recommended cash offer for Stride Gaming

Based on ShoreCap’s current pre-Stride estimates, Rank is forecast to generate earnings per share of 14p in the year to June 2019, increasing to 15.8p in the following year thanks to digital growth and the benefits of a current transformation programme.

While Stride has “had a difficult year or so” as the online gaming industry as a whole has dealt with increased compliance and due diligence measures, “the majority of the impact from these compliance measures was in the first calendar quarter” and will “annualise” in future.

Once all of the £13mln identified synergies are in place after three years, Stride is forecast to add circa £15mln to Rank’s PBT, after depreciation, amortisation and interest, boosting EPS by 3p, as well as a highly experienced senior management team who will manage the enlarged digital operation.

“We see this earnings accretion, the remixing of the revenue stream and the opportunity to use acquired technology to accelerate growth, including international, as a catalyst to upgrade,” ShoreCap wrote in Wednesday’s note to clients.

Rank shares were down a penny to 156p on Wednesday.

Quick facts: Rank Group

Price: 103.8 GBX

Market: LSE
Market Cap: £405.53 m

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