Instant-service equipment supplier Photo-Me International (PHTM) has downgraded 2019 profit guidance, blaming over-supply in its Japanese photo identification business for the earnings shortfall.

Shares in the photobooths-to-laundry units operator slump 22.7% to 117p on disappointing news that extends their poor run year-to-date.

MIXED PICTURE

Listed on the London Stock Exchange since 1962, Photo-Me operates around 47,000 vending units, including digital printing kiosks, laundry units and amusement machines, across 18 countries including France, the UK, Japan and the US.

Ahead of full year results (10 Jul), Photo-Me confirms profit before tax (PBT) for the year ended 30 April 2018 will be ‘broadly in line with market expectations’.

This includes a one-off £3.7m investment gain relating to its shareholding in Max Sight, an operator of ID photo booths in Hong Kong and China, which floated on the Hong Kong Stock Exchange in February.

However, management downgrades PBT expectations for the year to April 2019 to ‘at least £44m’. This implies an 18% downgrade to consensus forecasts and means profits will be flat on 2018’s result.

photome

The chief culprit is the ‘highly competitive’ Japanese photo identification market, which Photo-Me explains has the highest density of photobooth units per person of any country worldwide.

The £571.5m cap’s internationally diversified photo identification business is performing well everywhere save for Japan, where an over-supply is exerting downwards pressure on commissions across the industry.

As Photo-Me explains, ‘the number of photobooths increased significantly following the launch of the Japanese government’s My Number ID card programme. However, this card programme is not compulsory and has not gained the momentum photobooth operators initially anticipated.'

This year, the company will invest to restructure its troublesome Japanese subsidiary with the aim of improving profitability going forwards.

AWASH WITH POTENTIAL?

Encouragingly, Photo-Me continues to deploy the stable cash flow from its photobooth operations to develop complementary products to power growth. Its higher margin laundry business, a key growth driver, continues to perform well, revenues shooting 50% higher to £32.3m last year.

Earlier this month, Photo-Me acquired La Wash, a Barcelona-based leader in Spain’s business-to-business laundry services market for €4.75m, a deal that fits with its strategy of identifying complementary bolt-on laundry acquisitions.

Photo-Me Revolution

Although no final decision has been made, Photo-Me expects to maintain its existing dividend policy at the full year results, no doubt drawing confidence from a plump year-end net cash pile of £26m.

AJ Bell investment director Russ Mould comments:

‘Photo booth provider Photo-Me has seen its share price crash as it warns on profit thanks to weak trading in its Japanese business.

'Despite its name there is more to the business than just photo booths, with the company also offering biometric identification, high quality digital printing and unmanned laundry services.

'The problems in Japan follow a significant expansion in capacity in anticipation of a surge in demand from a new ID scheme which failed to materialise.

'The impact on profit is linked to the costs of restructuring its Japanese subsidiary although it is worth keeping its importance to the business in perspective.

'In the 12 months to 30 April 2017, Asia and the rest of the world combined, encompassing Japan, contributed less than 20% of group operating profit.'

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Issue Date: 30 May 2018