The Investment column: Hard Rock lets Rank down

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The Independent Online
The stock market was right to interpret yesterday's 11-month "trading update" from leisure giant Rank as nothing more than a thinly disguised profits warning. Shares in the bingo-to-Butlins group fell 25.5p to 416.5p as investors reacted badly to two worrying developments.

The biggest surprise came at the Hard Rock themed restaurant chain. While just about any old branded concept serving up half-decent beer and grub seems to be coining it, Hard Rock has spectacularly missed out on the bonanza. True, a BSE beef scare closed the Paris branch for 15 days in the autumn, but nevertheless like-for-like sales in the 32 Hard Rock cafes fell 4 per cent - analysts noted that in London turnover rose a sub-inflationary 2 per cent while sales fell in New York. Not surprisingly, Hard Rock has recently expanded its national and local sales forces in the US to beef up the marketing effort.

The other concern is the slipping timetable for the planned pounds 1bn sale of Rank's remaining 20 per cent stake in copier company Rank Xerox. Originally due to take place in the first quarter of 1997, the talk now is of a sale some time before the end of 1998. The sale is seen as a way for Rank to return cash to investors, either in the form of a share buy-back or special dividend, but they should not hold their breath.

Disposals of non-core assets form a key part of the strategic review recently completed by new chief executive Andrew Teare, formerly of English China Clays.

Yesterday saw the Shearings holiday coach business finally sold to its management for pounds 83m. All told, Rank has raised more than pounds 200m during the second half, though borrowings still remain around pounds 1bn after Rank splashed out pounds 123m in October for the Tom Cobleigh chain of themed pubs. That deal raised eyebrows in the City and prompted accusations that Rank, for all its talk of restructuring, was still prepared to pay full prices for cyclical businesses at the top of the economic cycle.

Broker Kleinwort Benson sticks with its bottom-of-the-range forecast of pre-tax, pre-exceptional profits of pounds 294m this year, rising to pounds 345m in 1997. That implies a price/earnings ratio of 17 falling to 15. Unexciting.