Bingo Poker Tax Reduces Rank's Value

Published Thursday, April 23, 2009 -

Rank Group which has interests in the online gaming industry, has issued a profit warning statement in a reaction to the Parliament of the United Kingdom recent Budget announcement that it will raise taxes on Bingo operators.
In the surprise announcement, the government said that participation fees on bingo and poker would no longer attract Value Added Tax but would instead be subject to a Bingo and Casino duty. As of April 27 the taxation of bingo - one of Rank's main business areas - was increasing from 15% to 22%. Rank's statement said, 'After accounting for these additional costs, Rank anticipates that it will continue to operate within its banking covenants.' The changes will result in a hike in its costs of £9 million in 2009 on an annualised basis. A decline of 13% was seen at Ranks Interactive business which it said was caused by a significantly lower win margin in its sportsbook operation.

As a result of the warning, Rank's shares were down 12.2% today. Rank in an attempt to shore up expectations said, 'The tax changes announced in the Government's Budget statement today will have an adverse effect on the Group's profits in 2009', 'The stock trades on a 2009 price to earnings ratio of 12.4x, so it is not cheap when set against the rest of the sector, and given today's forecast downgrade we would expect the shares to trade lower in the near term.' Following the tax hike it is reducing its 2009 and 2010 full year profit expectations by 15% and 20%.

Rank has been lobbying hard for reductions in tax on bingo arguing that it is not treated fairly when compared to other forms of gambling and that women who go to bingo effectively pay much more than their husbands when they go to bookmakers.

Cazenove financial advisory group warned the company may not be able to pay a dividend until 2012 at the earliest, adding: 'Rank's announcement is unexpected and in our view will be a significant disappointment to the market.'

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