Photobooths-to-laundry machines operator Photo-Me International (PHTM) is out in the cold with investors once more, marked down 9% to 96.6p on a modest first half profits miss.

But the key catalyst for selling is the outlook statement, in which the instant service equipment play appears to be softening investors up for another profit warning.

CLOUDED OUTLOOK

CEO Serge Crasnianski expects to meet previously stated guidance for full year 2019, with pre-tax profit (PTP) of £44m, ‘net of restructuring costs in Japan and excluding movements in the value of the group’s investment in Max Sight Holdings’, an automatic ID photo booth operator now listed in Hong Kong.

However, Crasnianski goes on to spook the market with the comment: ‘The group’s ability to meet guidance remains subject to the economic environment, foreign exchange movements and consumer sentiment, which could affect performance.’

Management remains (reasonably) comfortable with full year expectations for now, yet the political backcloth in both France and the UK, Photo-Me’s biggest markets, has become much more challenging.

STEADYING THE SHIP

Photo-Me’s management deserves credit steadying the ship following a profit warning in May, notably achieving a quicker than expected turnaround in Japan.

Yet results for the half ended 31 October reveal a 21% slump in reported pre-tax profit to £26m, struck after Japanese restructuring costs and a loss on its shareholding in Max Sight.

Furthermore, first half profits were impacted by large order lags in business-to-business (B2B) and third party sales in the UK, a state of affairs which is expected to recover in the second half. And with net cash up from a year-end £26.7m at £32.4m, Photo-Me feels confident enough to leave the half time dividend unchanged at 3.71p.

INNOVATION CONTINUES

Encouragingly, the operations in Japan have recovered faster than expected and Photo-Me is still confident the Japanese business will return to growth this year.

Meanwhile, Photo-Me reports continued expansion of its Laundry business, the primary growth driver, across Europe, and also flags progress in the roll-out of its photobooth identification solutions. Innovation continues apace too, with banking booth technology launched with a first partner in France after the half-year end.

For now at least, Finncap (FCAP:AIM) scribe Guy Hewett is leaving his forecasts intact. For the year to next April, Hewett looks for adjusted pre-tax profit of £46.1m (2018: £46.8m), recovering to £48m and £49.7m in 2020 and 2021 respectively. A maintained dividend of 8.4p is forecast for this year, rising to 8.9p and 9.3p thereafter.

Over at Canaccord Genuity though, number-cruncher Simon Davies is more cautious, lowering his price target from 160p to 150p and downgrading current year pre-tax profit and earnings per share estimates from £47m and 9.6p to £45.5m and 9.3p respectively.

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Issue Date: 10 Dec 2018