ME International (MEGP) 103.05p

Gain to date: 27%

Shares said to buy instant service equipment company ME International (MEGP) – previously known as Photo-Me – on 16 June 2022 based on its good growth potential and pricing power which was not reflected in the lowly eight times 2022 price to earnings ratio.

So far, the decision has been vindicated with the shares jumping 27% from the 81.2p entry price. Despite the pleasing gain, the price to earnings multiple has only expanded to 8.9-times, while the consensus analysts forecast for 2022 earnings estimates has gone up by 10%.

WHAT HAS HAPPENED SINCE WE SAID BUY?

In addition to the corporate rebrand, the company has increased full year guidance yet again. For the year to 31 October, the firm now expects revenues to be between £256 million and £262 million, versus previous guidance of £257 million.

Meanwhile EBITDA (earnings before interest, tax, depreciation, and amortisation) is expected to be between £82 million and £85 million, up by 2.5% from the middle point of the prior range.

Management said it continued to see stronger consumer demand for all the group’s services while trading in Asia remained subdued due to pandemic restrictions remaining in place for longer.

FinnCap analyst Guy Hewitt upgraded his revenue estimate by 4% and his EBITDA estimate by 9% to £84 million while James Wood at Canaccord raised his earnings per share forecast by 12%.

Wood commented: ‘We believe the group’s strong trading performance demonstrates the resilience and pricing power of the Identification vertical which is attributable to non-discretionary demand for official documentation as well as a return of travel related spend (c.35% of ID revenues).’

WHAT SHOULD INVESTORS DO NOW?

The company’s revenues are underpinned by long-term client relationships and multi-year contracts which provide good visibility and strong cash flows.

The low valuation of the shares does not reflect the high quality and growth potential of the business. Keep buying the stock.

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