Instant service vending equipment specialist Photo-Me International (PHTM) has delivered robust, better than expected half year results, with the rapid growth in its higher margin laundry operations more than offsetting lower photobooth takings in the UK and Japan.

Shares in the photobooths, printing kiosks and amusement machines operator slip back 4.5p to 182.5p despite the good news. Some investors might be locking in profits following a strong 2017 run, others are perhaps disappointed by the absence of further earnings upgrades today.

VERITABLE CASH MACHINE

Half year results to 31 October reveal 6.1% growth in pre-tax profit to £32.9m on sales 10.5% ahead at £122.2m.

Photo-Me’s performance was boosted by the weakness of sterling, since 80% of the fully listed firm’s profits are generated outside of the UK.

Cash-generative Photo-Me, which is a running Shares Great Idea, also declares a bumper 20.1% hike in the dividend to 3.71p, underpinned by period end net cash of £47.1m.

As Shares outlined in its recent Under The Bonnet article, Photo-Me is focused on three market segments: identification, laundry and digital kiosks, operating across 18 countries, yet it is laundry that represents the key growth driver.

LAUNDRY LEAPS FORWARD

Total laundry revenues surged 75% higher to £17.3m in the half-year period and CEO Serge Crasnianski ‘anticipates that laundry revenue will become an increasing proportion of total group revenue as we get closer to achieving our mid-term deployment targets.’

In the medium term, laundry revenue is expected to grow significantly as a proportion of Photo-Me’s overall revenue, with the company on track to reach its target of 6,000 total laundry units (owned and sold) deployed by the end 2020.

Photo-Me says it is ‘actively looking for further business-to-business laundry acquisition opportunities in Europe’.

Compact

RESTRUCTURING CHARGE

Encouragingly, Photo-Me is also taking firm action to boost the profitability of its UK digital printing business.

The restructuring of its Photo-Me Retail operations, which arose from the acquisition of the UK Photo Division of Asda Stores in late 2016, is underway.

Unprofitable manned printing kiosk operations will be phased out by the end of this month, leaving Photo-Me Retail refocused to provide online and unattended digital printing kiosks services.

This will result in a £2m exceptional charge for the financial year to April 2018, of which £900,000 has been accounted for in the first half period.

THE ANALYSTS’ VIEW

Canaccord Genuity, a buyer with an upgraded its price target at 214p (previously 202p), argues Photo-Me ‘offers an attractive combination of a highly cash generative core ID machine estate, funding growth opportunities in Laundry, digital photo kiosks and other initiatives (it is in negotiations with several banks to launch an award-winning banking booth).’

FinnCap leaves its existing forecasts and 215p target price unchanged, forecasting growth in adjusted pre-tax profit from £48m to £50.5m for the financial year to April, ahead of £53m in financial year 2019.

The broker looks for a dividend hike to 8.4p (2017: 7p) this current financial year, implying a 4.6% dividend yield, with an 8.9p shareholder reward forecast for 2019.


Issue Date: 11 Dec 2017