Interim Results

Photo-Me has announced H1 2019E results. Underlying revenue grew 2.5% and although adjusted PBT fell 7.9%, the Group maintains its strong cash generation with net cash of £32.4m. Laundry continues to perform strongly, ID saw growth through the roll-out of secure upload enabled booths, the first banking booths were launched in France and the Japanese re-structuring is proceeding as expected. The Group maintains its full year estimate of c.£44m adjusted PBT but notes that the ability to achieve this will be dependent upon consumer sentiment, the economic environment and foreign exchange movements.

Interim Results

Ahead of today’s AGM, Photo-Me have issued a trading update for the five months to the end of September. Trading has been in-line with expectations and the Group is continuing to successfully pursue strategic objectives across all segments as well as re-structuring the Japanese photobooth business in order to position it for a return to growth. The Group remains highly cash generative and even with the dividend held steady in 2019, offers a dividend yield of 8.1%. Our forecasts for FY2019E and FY2020E remain unchanged.

AGM Trading Update

Photo-Me has issued a trading update ahead of the publication of full year results in July. The Group expectations for turnover and PBT for FY2018E are in-line with our forecast. The statement does, however, highlight difficulties in trading in Photo ID in Japan which will result in a lowering of our PBT forecast for FY2019E to £44m from £53m. The board has taken steps to resolve the issues and expects the Japanese Photo ID business to return to profitability following the restructuring in FY2019E.

Trading Update

Photo-Me has an 18.33% ownership holding in Max Sight ltd, a leading operator of ID photo booths in Hong Kong and Guangdong Province, China. Max Sight intends to raise a net HK$39m, by way of a share offer, to expand its current operations. This represents 25% of the enlarged share capital. Photo-Me’s holding will consequently be reduced to 13.75%. Assuming the shares trade at the mid-point of the indicative offer range, the revaluation of Photo-Me’s holding would result in an unrealised gain of £3m in FY18 which will be recognised in the Income Statement and marked to market at every subsequent reporting date. We have left our EPS forecast unchanged at 9.7p for FY2018E, ahead of the planned first day of trading on 28 February.

Proposed Listing of Max Sight Ltd

Interim results show the positive impact of Photo-Me’s targeted investment and strategic focus on expanding the Laundry business. This will continue to drive growth and become an increasingly significant proportion of revenues. The Group is also commencing the roll out of e-passport photo booths in the UK, following agreement with HMPO, and is progressing with the development of banking booths. A commitment to investment in innovation, driving profitability in the existing estate, strong cash generation and an attractive dividend yield all underpin valuation.

Laundry Becoming more Material

Ahead of its AGM, Photo-Me’s trading update confirms that performance is “consistent with expectations”. The announcement notes that the Group’s investments in integrated identification technologies and the laundry business have remained a key focus. Revenues have grown by 11.2% in the first five months of Photo-Me’s current financial year, aided by currency tailwinds. The Group has continued the rollout of its encrypted photo ID upload technology, while expansion of the owned and operated laundry business has continued in line with strategy. Photo-Me says that it is currently reviewing the progress of the UK Photo Division of Asda which it acquired last year. The outlook comment is overall positive, while noting some softening of the UK and Japanese markets. We make no changes to estimates at present noting the growth in revenues in the first five months of the current financial year which underpins our current numbers for FY 2018E.

In-line trading update

Photo-Me is something of a paradox – although it is a £600m market cap business, it still operates as if it were a nascent entrepreneurial business. It is risk averse and yet highly innovative. Its strength derives from the interaction between three core capabilities – building durable relationships with retail site owners, strong management of technology and product development, and delivery of operational logistics excellence. This note describes the Group’s positioning, and the core investment thesis.