Daily Stock Market Report (Thur 13th August) - COST, RNK, TPX, PBEE, STB

UK GDP has just been released. The economy grew by 0.3% in June and by 0.4% in Q2. This is in line with expectations. The previous quarter had seen growth of 0.6%.

ONS director of economic statistics Liz McKeown:

"Growth slowed in the second quarter of the year, following a strong start to 2026, but remained relatively robust.

"Services were once again the main driver of growth, while production was broadly unchanged and construction also grew."

The pre-open FTSE chart wobbled initially on the news, dropping a few points, before recovering. Slow and unsteady economic growth continues!

Overnight market movements:

• The FTSE is up 0.2% at 10,810

• S&P 500 is up 0.1% at 7,755

• Brent crude (November) is down 0.2% at $86.70/bbl

• Gold is down 0.6% at $4,385/oz

• Bitcoin is up 0.4% at $63,800

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Leaving it there for today, cheers! Spreadsheet accompanying this report: link.

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Companies Reporting

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Graham's Section

Rank (LON:RNK)

Up 3.5% at 103.3p (£483m) - Final Results Graham - AMBER/GREEN ↓

This casino and bingo hall operator has enjoyed a nice return to profitability after battling with Covid restrictions and then very high cost inflation until c. 2023-2024.

These full-year results for FY June 2026 show the positive trends continuing, as “ongoing cost inflation, increased taxation and regulatory headwinds were addressed through mitigating cost actions and efficiency savings.”

As you can see from the above, there is plenty of positive operating leverage at work when things are going reasonably smoothly. Net gaming revenue increases 6%, and underlying operating profit surges by 20%.

The company’s own calculated ROCE is excellent at 18.3%.

Unfortunately the returns this year aren’t very clean, with £23.3m of "separately disclosed items” (compared to only £5.5m last year). That’s relevant to ROCE, because Stockopedia calculates it based on the statutory numbers, not on the numbers that have been massaged by various adjustments.

So for example, Stockopedia calculated last year’s ROCE as a more average 9.4%

As the “separately disclosed items” have such a big impact on the bottom line and on profitability calculations, let’s see what made them jump higher this year.

It’s complicated, but here’s my summary of the adjustments. From largest to smallest:

• £6.7m costs to close some Mecca bingo venues, offset by some credits from venues closed in prior periods. A one-off cost? Arguably yes.

• £6.5m loss from a payment fraud incident in Spain. Is this a one-off incident? Arguably yes.

• £5m provision from regulatory settlement with the Gambling Commission. There were historical compliance failures at Grosvenor Casino (details not given). A one-off incident? Not sure. It’s the gambling industry, after all.

• £3.7m of restructuring and other costs. I definitely wouldn’t ignore this.

• £1m impairment.

Ultimately, it’s a matter of opinion as to what you think the real profit figure is (that old saying is correct - profit really is just an opinion).

With £23m of adjustments, I’d assume that about half of them are true instances of bad luck and one-off costs that aren’t reflective of the company’s underlying profitability.

That would leave me with a true underlying profit figure of about £67m.

But this is a capital-intensive business and it’s not easy to convert profit into free cash flow. The net free cash flow result for the year is £25.5m, slightly worse than last year’s £27.7m.

After dividends, the company’s net cash balance does improve, but perhaps not by as much as you’d think: from £45m last year to £57m this year.

Outlook is fine, with remote gaming duty delaying the company’s ambition to achieve £100m of underlying operating profit.

We finished 2025/26 with strong trading momentum and have made a good start to the new financial year with Group NGR up 8% for the first six weeks…

We reiterate our ambition to deliver at least £100m underlying operating profit in the medium term. Digital profitability will inevitably step down in 2026/27, however, due to the annualised impact of RGD at 40%, despite the decisive mitigating actions we have taken in 2025/26…

Remote gaming duty increased on 1st April of this year, and so its effect on FY June 2026 was limited. We’ll see the full effect in FY27.

CEO comment

The CEO makes a nice statement, pointing out that the company paid £225m in taxes and duties during the year (half the market cap!). More positively:

There is material growth runway ahead, most obviously for our Grosvenor casino venues where gaming machines optimisation is an area of sharp focus and significant opportunity.

Graham’s view

I turned GREEN on this in April at a share price of 102p.

Since then, we’ve had the resignation of Keir Starmer and the installment of a new PM who may favour much higher tax rates on slot machines. There is a thinktank proposal to double Machine Games Duty on high-stakes machines from 20% to 40% - with gaming machines having played an important role in Rank's recent success.

Rank’s CEO has made the case against higher taxes today:

Tax increases for clubs like ours, with high levels of supervision and operating on tight margins, will swiftly lead to lower tax receipts as much-loved bingo halls and casinos will be forced to close, impacting customers in local communities. The Government has supported bingo clubs like ours in recent years and any tax increase would have a material impact on commercial viability.

From an investment perspective, I’m inclined to believe him and to view this as a real threat to the commercial viability of venues.

If Machine Games Duty increases, the best-case scenario may be a further delay in Rank’s ambition to achieve £100m of operating profit. But I would expect more venue closures and more exceptional costs.

Speaking of exceptional costs, I’d be more inclined to stay GREEN on Rank today if the results had been cleaner. Overall, I’m wondering if I allowed myself to get a little bit too enthusiastic about this one - although I did acknowledge that it was risky!

For now, AMBER/GREEN seems to be the more prudent stance. I still think it’s an excellent casino and bingo hall operator, and with some strong online operations, too. And I like the valuation at 10x earnings:

However, given all of the risks and the complications involved in running a land-based business in this highly-regulated industry, maybe I should tone down my enthusiasm just a tad. AMBER/GREEN it is.

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Secure Trust Bank (LON:STB)

Up 2% at £16.04 (£301m) - Interim Results - Graham - GREEN =

We turned green on this in February on the basis of the stock still being very cheap (trading at 5x earnings) despite having multi-bagged over the prior year:

Looking at it today, it still offers plenty of straightforward value against earnings

The financial highlights for H1:

• Adjusted PBT +9.4% to £31.3m

• Few adjustments are needed; actual PBT comes in at £31.4m or £29.9m if we exclude discontinued operations.

• Adjusted return on equity 14.5%, actual return on equity 12.3%.

In terms of safety, the CET1 ratio is 14.3% which by banking standards is considered extremely safe. This has increased after the company exited its Vehicle Finance business.

Guidance unchanged:

Note that the CET1 ratio is seen falling to 13.5%. Makes sense to me. Keeping it over 14% is likely to be inefficient.

And that 8-10% net lending growth rate looks attractive to me, considering the value on offer here.

Indeed, given the value on offer, I would expect to find more problems and risks for investors here - but they aren’t jumping out at me. For one thing, the growth rate looks perfectly satisfactory to me: there was 4.9% loan book growth in the six-month period. A 10% annual growth rate might be both attractive and realistic.

Dividend: the buyback payout isn’t as large as it could be, but I wouldn’t let that bother me. The interim dividend is 12.4p and the market expects full-year dividends of 37.6p. That pales in comparison to the forecast EPS figure of 246p.

And so it makes sense that the company would also buy back its own shares, given the low dividend payments, the capital released from exiting Vehicle Finance, and the low earnings multiple. A £10m buyback is underway and when it’s completed in September, “a further announcement will be made”. Another buyback, perhaps?

Outlook: very positive, while also warning of a volatile external environment..

Our continued focus on delivering operating leverage is expected to move the cost income ratio towards levels achieved by leading peers over the medium-term, providing a clear pathway to higher returns. The Group is now operating with a lower cost of risk, remains strongly capitalised and is actively returning capital through an ongoing value-accretive share buyback programme.

The first half of 2026 demonstrates clear execution against our strategic priorities and reinforces our confidence in the targets set out earlier in the year. We are laying the foundations to deliver our medium-term targets of c.10% annual net lending growth and return on average equity above 16%, while remaining on track against our 2026 guidance metrics.

Graham’s view

This is now a leaner, more focused business with 650 employees (down from 845 a year ago).

When a P/E multiple of 5-6x is involved, there’s nearly always a “catch”. Apart from the fact that this is a bank and its shares have already multi-bagged for investors, the catch isn’t apparent to me. I’m therefore staying GREEN.

Stockopedia calls it a Turnaround; perhaps it can graduate to Super Stock status as Quality improves over time?

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Mark's Section

Costain (LON:COST)

Up 5% at 230p (£580m) - Half-year Financial Results - Mark - AMBER/GREEN ↓

Background:

Costain has been a bit of a smooth trends favourite over the past few years, with the share price delivering 4x returns to holders in that time:

However, this continued share price momentum doesn’t appear to have been driven by significant upgrades in EPS recently:

And the longer-term trend shows flat performance after the initial post-COVID recovery:

Returns here have been largely driven by a market re-rating, rather than changes in corporate performance. Here are the valuation metrics from three years ago:

And here is today:

This shows why Value Investing still works. The markets’ perception of companies changes far more significantly than any change in fundamentals, and investors who can take advantage of these swings can generate great returns.

However, three years tends to be a dangerous time for trends, as mean reversion in corporate performance can start to impact outcomes. These results come at a critical time.

Today’s results:

The headlines are uninspiring:

· Revenue up 3.4% to £543.1m…

· Adjusted operating profit up 3.0% to £17.3m…

· Adjusted EPS up 3.6% to 5.7p…

Taken in isolation, these show that the company is trading flat in real terms and without any sign of positive operational gearing; costs are going up slightly faster than inflation.

However, there are also some positive signs. Cash flow from operations was £14.1m, which, combined with working capital timing, led to a net cash position £20m higher than the previous period at £164.4m. The dividend is increased, reflecting a reduced dividend cover target.

Very importantly for companies in this sector, this doesn’t appear to be due to window dressing, as the average cash balances are in line with this figure:

Group's average week-end net cash balance in the period was £177.3m (H1 25: £152.9m, FY 25: £149.2m

This doesn’t mean that all this cash is distributable. Corporate failures in this sector usually result from major projects that go wrong combined with net debt. Customers and suppliers often demand a bullet-proof balance sheet. Trade Payables still exceed Receivables by £64m. This is normal for the company, but that trade credit is largely extended to them because they hold the cash to pay it if needed.

The level of cash balance here makes the balance sheet very strong for the sector.

Divisional Revenue:

The divisions show dispersion, with Road work down significantly but offset by growth in Integrated Transport, Water and Energy projects:

Order Book:

What is driving positivity about the future for both the company and investors is the size of the forward business:

As at the end of H1 26, our forward work position, which is our combined order book and preferred bidder book, was maintained at a record £7.0bn (FY 25: £7.0bn; H1 25: £5.6bn), an increase of 67% over six years and representing almost seven times our FY 25 revenue. When combined with the revenue delivered in H1 26, it includes £1.1bn of revenue for FY 26 and £1.3bn of revenue for FY 27, equivalent to 91% of consensus forecast revenue in both years.

This forward work position is around half a firm order book, and half as preferred bidder status. They have also had a strategy of diversifying their forward order position away from central government projects, and into private & regulated customers, and devolved government customers, which now make up 48% and 23% of the forward work, respectively.

Forecasts:

The size and visibility of this forward work position is reflected in the forecast. For example, Cavendish expects revenue to grow to £1.272bn for FY26 as a whole, an increase of 21.6%. This is followed by a further 9.6% rise in revenue for FY27.

However, delivering £1.272bn of FY revenue means that they have to deliver £729m in H2, which is a big jump from H1:

And Cavendish doesn’t forecast this revenue jump being reflected in PBT, which is below trend for FY26:

Panmure Liberum are slightly more pessimistic on revenue and optimistic on PBT, but the overall picture is very similar.

Valuation:

Panmure Liberum raise their target price today to 270p from 245p, and say that “a CY 27 P/E and yield of 11.8x and 3.3% are too cheap.”

Cavendish say:

Our 297p price target implies an 11.0x blended EV/EBIT across FY26/27E, in-line with the FTSE 250 five-year average. We believe Costain's heavier UK infrastructure weighting and balance-sheet-backed shareholder returns support a path to upside and a premium to the FTSE 250.

However, I struggle to get behind these views. The long-term PBT growth rate, including forecasts out to 2027, is around 5% CAGR, or about 2% real.

I’m not convinced this sort of performance deserves a FTSE250 average multiple.

Mark’s view

The market has liked these results this morning, perhaps more for the strength of the forward order book than the numbers themselves. The shares aren’t expensive. However, they also don’t look great value on 15x forward earnings and 13x FY27E EPS, for a business that is growing PBT by around 5% a year nominal.

The cash flow is good, and the company retains significant net cash. However, this is largely used to ensure that the company has the financial resilience to weather any storms, rather than significantly enhance shareholder returns; we would struggle to describe this as an income stock. There is an ongoing share buyback, but so far, this appears to have largely offset management options rather than led to a significant reduction in the share count.

We’ve been GREEN on this company for some time. Given the Super Stock status and solid balance sheet, I think it makes sense to be positive:

However, with a full valuation, a big H2 required to hit the FY revenue number, and rather mediocre PBT growth, it is more of an AMBER/GREEN for me.

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Tpximpact Holdings (LON:TPX)

Down 5% at 72p (£73m) - confirms £25m contract with the MoJ - Mark - AMBER/GREEN =

It seems strange for the share price to be down on a £25m contract win. However, the context of this is that the provision win was announced on Monday in response to “market speculation”. Today we get the details:

● Contract Value: £25 million

● Contract Duration: Initial 3-year term from 3 August 2026 to 2 August 2029, with an option to extend for a further 12 months to August 2030 (totalling up to 4 years).

● Framework Procurement: Awarded following a competitive selection process under Lot 2 (Digital Capability and Delivery Partner) of the Digital Outcomes and Specialists 7 (DOS 7) framework.

TPX Impact has been winning a number of government contracts recently, as the push to drive public sector efficiency is increasingly relying on IT solutions.

What may be disappointing to some is that this win appears to have already been in forecasts. Their broker, Cavendish say:

Reiterated guidance incorporates healthy double-digit revenue growth, leading to adj EBITDA margin improvement of +1% pa. Forecasts show +28% FY27E revenue growth and subsequent +10% growth to £110m in FY28E, driving adj EBITDA growth of +37% in FY27E and +19% in FY28E with margin expansion to 13% in FY28E. Net debt expectations remain breakeven by FY27E, an impressive improvement from £17.5m net debt at FY23.

However, forecasts remain the same at £100m revenue for FY27 and £110m for FY28, with £10.7m and £13.3m Adjusted PBT, respectively.

The relationship between forecasts and the share price has been far from linear here recently. Interim results kicked off the current strong performance in December, where an in-line forward statement led to a 40% rise in share price. The market clearly doubted they were trading in line before then!

Then a series of large contract wins over the next six months led to the share price doing 5x off the lows, despite the broker mostly saying that these were in forecasts for future years. The market now doubted that they weren't trading ahead. This was backed up by upgrades for FY26, which Roland nicely summarised when we reported on their FY26 trading update in April:

Final results at the end of July led to material upgrades in EPS for forward years, and the market shrugged its shoulders!

So today’s contract news may well be the start of very similar market behaviour.

Valuation:

Despite the meteoric rise in share price recently, the shares continue to look good value. Cavendish has 10.3p EPS pencilled in for FY28, and it is these types of contract wins that provide visibility over those earnings. They also forecast the company to become net cash positive at the end of this financial year. These metrics make the stock look too cheap, assuming they are delivered.

[Note: I can only see Cavendish research here, so the Stock Report forecast data appears to be a little behind the times.]

Mark’s view

While this contract win was effectively announced on Monday and was already in forecasts according to Cavendish, given the low forward valuation, anything that builds confidence in these should be welcomed.

Only the relatively short history of trading profitably and the cyclical nature of government procurement mean that I keep our AMBER/GREEN view.

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Pensionbee (LON:PBEE)

Down 2% at 142p (£346m) - Half-year Financial Report - Mark - AMBER

Some strong growth metrics as a 14% rise in customers, together with net inflows and supportive markets meant that Assets Under Administration rose 37% to £8.6bn.

This fed through to revenue:

Group Revenue increased by 40% to £26.4m for the first half of 2026 (H1 2025: £18.9m), with Group Annual Run Rate ('ARR') Revenue increasing by 40% to £55.8m (H1 2025: £39.8m), reflecting the scalable and predictable nature of the Company's recurring Revenue model.

However, this ends up being another loss-making period, with £3.3m operating loss. This is improved on last year’s £5.6m loss for the same period and looks to be in line with forecasts. This isn’t unusual for a company pursuing growth above all else. However, this is getting on for a long-time for a company not to be profitable:

Growth trends:

The good news is that 40% revenue growth looks to be an acceleration from recent trends. The bad news is that the cost base appears to be growing at a similar rate:

The current trend is for the cost base to rise by about 16% a year. Not too much of an issue if the revenue rises at 40% a year.

Revenue Drivers:

However, it is worth looking at what is driving that revenue growth:

Net flows are actually pretty steady at £400-450m per half. The big driver recently has been market performance. This may not continue.

Modelling:

This all means I can create my own model of where profitability may progress from here, at similar rates of net flows and cost base rises. The big unknown is market performance. Given where we are for valuations, and that PensionBee’s strategies are largely passive and low-cost, perhaps 7% nominal may be reasonable for global equities going forward? Many valuation methodologies put the expected 10-year returns from here at close to zero, but then these have been wrong for a number of years now as passive flows continue to favour megacaps.

Anyway, based on these assumptions, this is what I get:

There is an anomaly between what the company says is their cost base and what their accounts say, but I suspect this is share-based-payments-related. Anyway, my model backs up the idea that the company will break into profitability in 2027. However, this doesn’t look particularly cheap at the current share price, even modelling out to 2030.

The only thing one can guarantee about a model is that it will be wrong. However, it does highlight that the company will need to find a way of either growing net flows faster than they have recently, or increase their cost base much more slowly to really grow into their current valuation, let alone justify a higher one. Their recent move into the US may provide these opportunities, but that is not yet proven, in my opinion.

Mark’s view

This is a decent growth company providing an important service. However, my analysis suggests they have been struggling to grow net flows by more than about £450m per half in the past few years despite client number increases. Unless this accelerates in the future, market performance will increasingly be the driver of their AUA growth, and hence they will be subject to much greater volatility in AUA. Their cost base continues to grow close to the revenue growth rates, and although a widening gap means they will break into profitability soon, it is less clear that they can grow the bottom line at a rate that justifies their current rating without growing net flows or cutting costs.

While this doubt remains, I think we need to maintain our neutral view of AMBER.