Bingo trading has picked up but gaming group Rank is still negative on trading prospects for 2008. The faint glisten of hope could be the catalyst for takeover speculation to become a reality.

The Mecca bingo operation was the cause of several profit warnings over the past six months. Rank has struggled to survive in the post-smoking ban era.

In the first eight weeks of 2008, bingo like-for-like revenue fell at a slower rate than in September when new gambling rules came into force.

The Gambling Act forced Rank to reduce its fleet of £500 prize gaming machines from 900 to 400. It has been allowed to raise slot machine prizes to £35 from £25, but so far this hasn't fully compensated punters.

High taxes on casinos cost Rank's Grosvenor arm an extra £4.6 million in gaming duty during 2007. Earnings have fallen across its casino operations, but Rank intends to expand its portfolio after the government said earlier this week that it would proceed with the development of 16 'new generation' casinos.

Underlying profits for the group fell 7% to £68.3 million in 2007.

Rank's pension scheme has been sold, subject to the tax man's approval. Stockbroker Evolution said this makes Rank 'a cleaner target for potential bidders'. Analyst Ivor Jones added: 'On an ongoing basis it removes the uncertainty over the net asset or liability position from the valuation. The icing on the cake is that there will be a payment to Rank of at least £20m and that £31m of projected future payments into the fund will not have to be made.'

Around £15 million of new cost savings have been identified and trading continues to be strong at Blue Square, Rank's online sports betting service. These positives should mean Rank avoids the risk of breaking its banking covenants.

Rank axed its dividend last December in the tough trading conditions and the firm's share weakness has attracted interest from the likes of Malaysian gaming group and Stanley Casinos owner Genting, which has built up an 11% stake.

Buy-out firm Duke Street Capital is seen to be interested in Mecca.

Shares in Rank advanced 4% to 95p.