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magazinePhoto-Me’s bright earnings picture
PHOTO-ME INTERNATIONAL (PHTM) 161p
Stop loss: 128.8p
Market value: £600.5m
Weakness at photobooths-to-printing kiosks play Photo-Me International (PHTM) is a buying opportunity. The £600.5m cap offers a good hedge against Brexit-related uncertainties as it generates 90% of profits outside of the UK. Consensus estimates could prove conservative given positive progress underway with numerous growth initiatives. Broker finnCap’s 215p price target also implies 33.5% upside from current levels.
ENJOYS A GLOBAL FOOTPRINT
Photo-Me operates, sells and services photobooths, printing kiosks, amusement machines and business service equipment across 18 countries, with key markets including Europe, Japan and the UK & Ireland. However, Photo-Me is using the stable cash flow from its established photobooths business to invest in some exciting identification, laundry and digital kiosk innovations that could drive future growth.
Photo-Me is developing integrated digital security solutions for governments that enable the direct and secure transfer of data from its photobooths for driving licences and passports.
In Ireland, the full list firm’s encrypted photo ID upload technology has been adopted by the Irish government for its new Online Passport Application service. This builds on the deployment of secure data transfer technology photobooths in France, enabling photo ID to be uploaded directly to ANTS (Agence Nationale des Titres Sécurisés, a national agency linked to the French Ministry of Transport) servers for driving licence applications.
SHOWING RIVALS CLEAN SET OF HEELS
Meanwhile, the rapid expansion of Photo-Me’s laundry division in Europe, spearheaded by France, Belgium and Portugal, continues. A maiden launderette in Japan has also opened, paving the way for a more aggressive rollout in one of the largest global markets for launderettes.
There is also an additional earnings catalyst in place. In 2016, Photo-Me acquired 191 photo centres and 172 self-service kiosks from Asda, together with the supermarket’s online photo and merchandising processing business, strengthening its hand in digital printing and its existing relationship with Asda. While loss-making in the last financial year, investments in reconfiguring in-store layout and upgrading equipment should generate a near-term recovery in revenue and margins.
VERITABLE CASH MACHINE
Photo-Me’s full year results (27 Jun) to 30 April revealed a fourth consecutive year of double-digit earnings growth and record pre-tax profit, up 19.7% to £48m with a currency tailwind. Even after distributing £32.6m in dividends and £41m of investments in future growth, net cash came in at £39.2m and finnCap foresees this cash pile fattening up to £48m by 2020.
For the year to April 2018, Roger Tejwani forecasts adjusted pre-tax profits of £50.5m for earnings of 9.8p (2017: 9.3p) and an 8.4p dividend (2017: 7p). On this basis Photo-Me offers an attractive 5.2% yield.
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