Out-of-favour photobooths-to-laundry machines operator Photo-Me International (PHTM) rallies 10.6% to 110.2p as the Epsom-headquartered company assures its Japanese business will return to growth this year.

There’s also relief as Photo-Me confirms it has traded in line with downgraded expectations in the first five months of the financial year - first half results will be flat year-on-year - with the absence of a further profit warning well-received.

Shares in Photo-Me were heavily punished in the wake of a profit warning issued in May, one blamed on over-supply in its Japanese photo identification business.

DECISIVE ACTION IN JAPAN

In today’s AGM update, the instant service equipment group, listed on the London Stock Exchange (LSE) since the early 1960s, assures it has taken decisive action to restructure its Japanese arm, in order to re-align activities with tougher market conditions.

Japan has the highest density of photobooth units per person of any country worldwide and this over-supply has exerted downwards pressure on commissions.

‘Whilst the photo-identification market in Japan remains highly competitive, the benefits of Photo-Me’s initiatives are becoming evident earlier than initially expected’, enthuses Photo-Me’s management, confident ‘that its Japanese subsidiary will return to growth in full year 2019.’

In the ‘Land of the Rising Sun’, a management reorganisation has been completed, administrative costs cut, low revenue machines relocated and unprofitable units removed. Furthermore, new units with a significantly lower production cost are being deployed.

BRIGHT GROWTH PICTURE

Elsewhere within the business, the deployment of Photo-Me’s encrypted photo ID upload technology is progressing well in France and also in the UK, where 2,700 photobooths are now enabled for Passport renewals with 4,000 targeted by the end of December 2018.

Excitingly, Photo-Me is also in talks with the Dutch government to deploy the technology in photobooths in the Netherlands for use in driving licences.

Investors are also feeling happier about a positive update on Photo-Me’s laundry business, expanding in the UK and throughout Europe and on track to deploy its target of 6,000 units (owned and sold) by 2020.

FinnCap’s Guy Hewett sticks with his 183p target price following the update, one implying some 66% potential upside, the analyst being a fan of Photo-Me’s strong cash flow and attractive return on capital employed (ROCE).

For the year to next April, Hewett forecasts a reduction in adjusted pre-tax profit from £46.8m to £46.1m, ahead of estimates of £48m and £49.8m for financial years ending in 2020 and 2021 respectively.

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Issue Date: 24 Oct 2018