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Shore Capital has highlighted three leisure companies with significant recovery and growth potential, employing cricket analogies to illustrate their possible future success. The financial group suggests that Rank Group PLC (LSE:RNK), C&C Group PLC (LSE:CCR), and Entain PLC (LSE:ENT) could all "raise the bat" in the near future, with Rank and C&C aiming for £100 million in operating profit and Entain targeting 100p in earnings per share (EPS).
These companies have faced challenges in recent years, but Shore Capital believes that modest improvements could lead to substantial upward revaluation. Rank Group reported operating profits of just £18 million in 2023, affected by lower casino visitor numbers, rising costs, and underperforming digital trading. Shore Capital predicts that Rank’s operating profit could rise to £80 million, bolstered by a recovery in casino revenues and improved digital profitability, with additional gains of up to £20 million from proposed gambling reforms.
C&C Group has encountered issues, including difficulties with an enterprise resource planning (ERP) system and challenging conditions in the hospitality market, resulting in operating profits of €60 million last year. However, the outlook for C&C could improve as the company resolves ERP challenges in its GB Distribution division and enhances margins in its Branded Drinks segment. Growing demand for premium beer and cider, along with addressing underperformance in the Magners brand, could further enhance C&C’s performance.
Entain has seen its EPS forecast fall below 30p due to various factors, yet Shore Capital identifies several catalysts that could drive earnings upward. These include a return to market growth rates and 28% margins in its Digital division, alongside reducing losses from BetMGM and eventually reaching $500 million in EBITDA. Cost savings from lower interest charges could also significantly contribute to improving its EPS over time.
Recent updates from the three companies indicate progress on these fronts. Rank has reported a partial recovery in profitability and upgrades in digital targets, while Entain’s online revenues have turned positive. C&C showcased strong profitability in the first half of the year, indicating signs of recovery.
Shore Capital suggests that share prices for RNK and CCR do not yet reflect the companies' robust cash flow and potential to reshape the UK casino market, with both stocks possibly exceeding 200p per share. Entain could target £20 if it delivers on its earnings progression and achieves its strategic goals.
