Photo-Me International PLC (LON: PHTM) 

Photo-Me International PLC (LON: PHTM) is an FTSE All-Share listed company that sells a diverse range of vending equipment catering to the B2C segment. The Group operates vending equipment like children’s rides, amusement machines, and business service equipment across 17 countries. Meanwhile, PHTM entered the self-service fresh fruit juice equipment market with the acquisition of Sempa in April 2019. Currently, the Company is focused on four principal business areas: Identification, Laundry, digital Kiosks, and Food. 

Growth Prospects

• Robust Laundry Operations: The total revenue for laundry operations surged by around 23.2% to £23.9 million during H1 FY21. Furthermore, PHTM had expanded the Revolution laundry operation with a healthy growth of 17.4% in the total number of Revolution units.

• Opportunity in Pizza Vending: PHTM had identified a growth opportunity in pizza vending and acquired a French manufacturer of pizza vending machines (Resto'Clock) for approximately £3.1 million in a cash deal. Moreover, it had plans to expand the production from 40 machines per year to 100 machines per month by the end of 2023 through the integration of this acquisition into KIS Foods.
• Bright Prospect for KIS Foods: The Company had plans to become the food vending equipment market leader in France by 2023. Furthermore, the Company had delivered 100 self-service apple juice machines alongside the 2,700 orange juice machines. 
• New Corporate Brand Strategy: PHTM remained all set to launch a new corporate brand, "ME Group", to support the growth strategy and continued diversification.

Key Risks

• Reputational Damage: The risk of inability to deploy Customer requirements for services in a timely manner might result in the reputational damage of PHTM.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.
• Changing Market Dynamics: If the industry fails to attract, develop, and retain key creative commercial and management talent, it could lose business. In the long-term, it needs to enhance the skills of its people and needs to constantly innovate.
  

Now, we will analyse the Key Fundamental Statistics & Shareholding Pattern of Photo-Me International PLC.

Crasnianski (Serge Paul) is the most significant shareholder as it holds nearly 108.84 million shares as of 30 June 2021. 

Q3 FY21 Trading Update (as of 02 August 2021)

After witnessing a tremendous recovery during H1 FY21, the Company’s Q3 FY21 business performance remained better than expectations. PHTM had shown stronger-than-anticipated recovery of photobooth activity, mainly in Continental Europe.

H1 FY21 Financial & Operational Highlights (for the six months ended 30 April 2021, as of 12 July 2021)

(Source: Company result)

• The reduced restrictions drove revenue higher by around 3.4%, from £91.5 million during H1 FY20 to £94.6 million for H1 FY21.
• On the profitability front, the Company had demonstrated a favourable turnaround and reported a profit after tax of £9.4 million during H1 FY21, while it had reported a net loss of negative £21.3 million for H1 FY20.
• With regards to the balance sheet, the Company had improved the net cash position by around 113.9% from £7.9 million during H1 FY20 to £16.9 million for H1 FY21.
• The cash inflow from operations grew by about 4% during H1 FY21.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 30 September 2021, at 11:23 AM GMT+1, PHTM’s shares were trading at GBX 62.29, up by around 0.47% from the previous day closing price. Stock 52-week High and Low were 79.60 and GBX 41.02, respectively.

From a technical perspective, the stock price is falling between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~34.79 is also supporting the upside momentum in the stock price.

Over the last six months, PHTM’s stock price has delivered a positive return of ~12.73%, and it has outperformed the FTSE All Share index (benchmark index) with a return of about 5.71%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

The Company had reported outstanding H1 FY21 results with marginal top-line revenue growth and switched back into profitability. Moreover, the Company had raised full-year FY21 revenue expectations from £200 million to £210 million, positively driven by the improved performance displayed during Q3 FY21. PHTM is expecting profit before tax of between £25 million to £30 million during FY21. However, the Company remained cautious of economic uncertainties because of the Covid-19 pandemic. Meanwhile, the Company had hinted at distributing dividend payments depending upon the strength of cash position at the end of FY21. In a nutshell, the Company is well-positioned to generate long-term returns for the shareholders driven by the increasing strategic investments in innovation and diversification.

Considering the turnaround in profitability during H1 FY21, improved revenue guidance, corporate rebranding, improved cash position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Photo-Me International PLC at the current price of GBX 62.29 (as on 30 September 2021 at 11:23 AM GMT+1), with lower-double digit upside potential based on 9.86x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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