STOCKWATCH Rank Group lower as Merrill Lynch retains 'underperform' stance

LONDON, Jun 26, 2008 (Thomson Financial via COMTEX) -- RANKY | Quote | Chart | News | PowerRating -- Shares in Rank Group Plc. were lower late morning after Merrill Lynch reiterated its 'underperform' stance on the group after proposals to increase category B3 machines in bingo clubs, market sources said.

At 10:56 a.m., Rank shares were 1-1/2 pence lower at 80, while the FTSE 250 index was down 110 points at 9,211.2.

In a note published this morning, Merrill Lynch said the UK Sports Minister, Gerry Sutcliffe, has outlined proposals to increase the number of category B3 machines within bingo clubs from four to eight, whilst not set in stone, this is positive news for the industry.

However, Merrill Lynch said Rank shares look fully valued at current levels and trade at a 30 percent premium to the sector on a 2009 price to earnings ratio of 14.7 times.

The broker added that accounting for the extra machines would still leave the shares trading at a 10 percent premium to the sector.

Elsewhere, Investec retained its 'hold' stance on the group and a target price of 95 pence.

The broker added that Rank Group has made good progress in stabilising the business after the initial smoking ban/machine restrictions impact, and these new entitlements increase the probability that Rank will deliver on the turnaround strategy in bingo, driving upgrades.

Investec said with better trading newsflow and stake-building, downside risks to the share price appear limited.

Elsewhere, Evolution Securities kept its 'buy' stance on the group and price target of 150 pence.

The broker added that the benefit to Rank from this new legislation could be an additional 7 million pounds of EBIT in 2009 from its forecast of 87.1 million pounds.

Evolution Securities said earnings per share would rise 11 percent from 12.3 pence to 13.6 pence on this assumption. joanne.frearson@thomsonreuters.com jf/ak

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