ME Group International (MEGP) 157.4p 

Gain to date: 39.3%

Instant service equipment company ME Group International (MEGP), formerly known as Photo-Me International, has pleasingly delivered what we hoped for when it was made one of Shares’ 2023 picks of the year in December.

Continued momentum in the business has prompted management to increase full-year profit guidance whilst investors finally appear to be willing to place a higher rating on the shares.

Since January the one year forward PE (price to earnings) ratio has nudged up to 11.6 times from 9.5 times.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

A strong trading update (2 June) prompted the board to increase guidance for the current year, ahead of previous expectations. Sales for the year to 31 October are anticipated to be in the range of £300 million to £320 million while pre-tax profit is expected to be between £64 million and £67 million. First-half sales increased more than 24% and pre-tax profit was 35% ahead of the prior half year driven by strong performances across the group’s 19 operating markets.

Canaccord Genuity increased its full year pre-tax profit estimate by 3% to £64 million which leaves room for a further upward revision if the company delivers at the top of the new range.

Director of research at FinnCap Guy Hewitt has increased his 2023 EPS (earnings per share) estimate by 12% to 13p and sales estimate by 9% to £310 million.

WHAT SHOULD INVESTORS DO NOW?

While investors may be tempted to ‘lock-in’ a 39% share price return in five months, we believe there is more to come from the investments the company is making to drive further growth.

In addition, the rating of the shares does not reflect their quality or growth potential. Hewitt notes they trade at a 40% discount to the UK mid-cap market based on free cash flow yield. We remain positive on the stock.

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