ME Group International (MEGP) 188.6p

Gain to date: 18%

We highlighted instant-service equipment group Me Group International (MEGP) as a compelling investment opportunity in February 2024.

The company’s business model is unique with inherent strengths allowing it to generate high returns on capital and consistent cash flow. This in turn provides potential for supplemental growth through acquisitions which are not factored into analysts’ earnings forecasts.

WHAT HAS HAPPENED SINCE WE SAID TO BUY?

The shares have comfortably outperformed the mid-cap FTSE 250 index since February 2024 with the business set to deliver another record year of profitability. In its last trading update of 2024 (4 December) the company said it expected to deliver 7% growth in revenue to ‘at least’ £318 million and a 10% increase in pre-tax profit to ‘not less than’ £73 million for the 12-months to the end of October.

The growth driver has been the roll-out of its Wash.ME automated laundry machines with 1,111 machines installed across key regions including the UK and France, representing 21% year-on-year growth in constant currencies.

The photobooth division is expected to show growth of around 4.4% excluding currency movements and continues to throw-off cash which is used to invest in the fast-growing and higher margin laundry business.

As the company flagged at the half year results (15 July) the Japanese yen has shown considerable weakness against the pound, falling by around 12% while the euro fell by 2%, impacting reported revenue when converted back into sterling. The effect is purely translational and has no impact on the underlying operations. Analysts at Berenberg point out the full year outturn will mark the fourth consecutive year of double-digit profit growth this decade.  

WHAT SHOULD INVESTORS DO NOW?

The business continues its growth momentum which we believe is not reflected in the low-teens PE (price to earnings) ratio of the shares, providing scope for a rerating. The shares have dropped back by around 16% since November 2024, giving investors another bite at the cherry.

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