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Photo-Me International – “another year of good operational progress”. Really?

By Steve Moore | Tuesday 10 July 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Photobooth, identification technology, laundry and digital printing kiosk company Photo-Me International (PHTM) has announced results for its year ended 30th April 2018, including emphasising “2018 has been another year of good operational progress, reflected in revenue growth of 7.1%, 4.4% growth in PBT, including a one-off gain on the group's shareholding in Max Sight Holdings Limited, and double-digit EPS growth”. Hmmm, let’s take a look at the detail…

Excluding the noted one-off gain, pre-tax profit was £46.5 million – that down from a prior year £48 million. After a reduction in tax rate, adjusted earnings per share were 7.7% higher to 9.61p. However, after the likes of tax, working capital movements and particularly £14.4 million of net investment spending more than depreciation + amortisation and £26.5 million of dividends paid, net cash reduced by £12.5 million to £26.7 million. Additionally, having pledged to do so, a 20% increased final dividend per share of 4.73p is proposed.

The company emphaises “revenue in our Laundry business rose 69% in the year, and we expect that these operations will contribute an increasingly dominant share to group profits as we capitalise on the significant expansion opportunities in our markets. Our Identification business continues to perform well as we focus on government partnerships for the adoption of our secure ID upload technology in new countries” and “supported by steady cash flows from our global, market-leading photobooth estate”.

However, there’s a need for “ongoing investment in innovation” and pre-tax profit for the current year is stated to be expected to be “at least £44 million” - i.e. down again. This includes a thorough restructuring in Japan – a government ID card programme having not gained the momentum initially anticipated and the market resultantly highly competitive.

I also note the board now currently this year only “intends to maintain a total dividend of 8.44 pence per ordinary share”. This compares to a current circa 120p share price - suggesting a still highly attractive yield and giving a market cap of around £450 million. However, outlook and net cash generation concerns see me currently retain prior caution here and avoid.

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