MARKET COMMENT
Bingo! A Steady Sector

By David Kuo (TMFDragon)
June 7, 2004

Those who think bingo may be dying a slow death had better think again!

At the end of March last year, Britain boasted 699 commercial bingo clubs. Furthermore, those gaming halls collectively entertained over 3m paid-up members, with each member on average making 28 visits a year. By way of comparison, the 84m trips to bingo halls was seven times more than the number of visits made by football supporters to league games last season.

Last year, bingo clubs raked in a whopping £1.2b in stake money, which is equivalent to £14.55 per visit by each member. In 2001, the average stake per visit was £13.69, up from £12.56 the year before that.

Interestingly, bingo stake money has been rising steadily since 1995, when it stood at just £844m. In my view, a 42% improvement in 9 years, in what is normally regarded as a sleepy industry patronised primarily by widows and widowers, is not that bad at all.

Gala, which is jointly owned by Candover Investment (LSE: CDI) and Cinven, is the biggest player in the UK bingo market. Gala operates 166 clubs throughout Britain and was formed by a management buy-in from Bass in 1997. The company said it entertains around 32 million admissions every year, which is almost 40% of the total number of admissions into bingo halls annually.

Rank Group (LSE: RNK) is another major player in the bingo sector, with 121 Mecca bingo clubs around Britain. It also boasts a membership of some 1.1 million members. According to Mecca, 45% of those members are under 44 years old. Last year, Mecca recorded an operating profit of £72m on sales of £232m, delivering an operating margin of 31%. Margins have shown a marked improvement since 1999 when it stood at 22%.

Rank's bingo division accounts for over a quarter of total turnover at its gaming unit, but over two-thirds of the division's operating profit. This is mainly because bingo, unlike other forms of gaming, is a form of pari-mutual gambling in which a fixed proportion of stake money is distributed as winnings.

Rank also owns casinos and restaurants, which includes its Hard Rock Cafes. A pre-tax profit of £184m has been pencilled in for this year, rising to £195m in 2005. At 14 times forward earnings, Rank is not especially expensive, given that its 4.8% yield is quite generous.

Top Ten Holdings (LSE: TTH), which reported a 120% jump in annual profits today, is a smaller, though more focused player in the bingo market. However, as a bit-part player, in my view Top Ten is likely to be more vulnerable to competition from the majors. That said the proposed changes to the gaming legislation, which could be announced this month, could have a beneficial effect on all bingo licence holders including Top Ten.