Photo-Me International PLC

Photo-Me International PLC (LON: PHTM) is a United Kingdom-based company, which operates, sells and services a wide array of instant service vending equipment, mainly aimed at the consumer market. Currently, the company has around 48 thousand vending units in operation, and technological innovation is focused on three principal areas: Identification, Laundry, and Kiosks.

The Group will prepare and publish an interim statement, regarding the six-month period ending 30 April 2020, which will be released in July 2020.

Business Update (as on 27^th March 2020)
This update announced the following strategic decisions of its board of directors considering the ongoing COVID-19 crisis. A first strategic decision is to cancel the Group's 2020 interim dividend and second is to change Photo-Me's accounting reference date. Driven by these macroeconomic uncertainties, the management is withdrawing present market guidance and will provide an additional update on guidance once more clarity is known around the outlook of the business. The company had adequate financial resources to ensure that PHTM stays well-funded until July 2020 assuming that the group has generated a very limited revenue in the period.  In respect of the current environment, the Board has decided to extend the PHTM's current financial year-end to 31 October 2020 from 30^th April 2020.

Financial Highlights (for the six months ended 31^st October 2019, £million)

(Source: Interim Reports, Company Website)

For the six months ended 31^st October 2019, the company’s revenue increased by 3.3%(up 1.8% at constant currency) to £123.9 million, while underlying revenue, excluding Sempa, was up by 0.4% (down 1.4% at constant currency) to £120.3 million. Led by the profit growth through laundry extension, the acquisition of Sempa and an increase in depreciation from the previous year period, EBITDA, excluding IFRS16 impact, surge by 10.7% to £43.3 million. On 31^st October 2019, the net cash decreased by 22.2% to £25.2 million. The adjusted EBITDA for the period rose by 9.1% to 6 pence.

Share Price Performance

Daily Chart as of April9^th, 2020, after the market closed (Source: Thomson Reuters)

On April 09, 2020, Photo-Me International PLC shares closed at GBX 47.45, up by 16.16% against the previous day closing price. Stock's 52 weeks High is GBX 107.80, and 52 weeks Low is GBX 32.50.

Key Risks
Economic recession could lead to a decline in consumer expenditure in discretionary areas. The volatility of foreign exchange rates also impacts the company's financial. Any changes in regulatory norms or any government policy could affect the business and profitability of the company. Cybersecurity is a big concern for the company, and any breach in data could affect the overall performance of the company. Uncertainty from key suppliers could impact the operations of the company.

Conclusion
The group has shown an increase in the first half of the financial year 2020. Both the top-line and the bottom-line performance has improved for the period. The group will face challenges in the future due to tough market conditions in the UK as a result of the exit of the UK from the EU. With the outbreak of Covid-19, many countries-imposed restrictions on travel and resulted in a sharp fall in the stock markets globally. The negative economic shock will keep downward pressure on the rate of interest, and central banks globally are cutting rates, including the bank of England for economic impact mitigation. The Covid-19 has resulted in increased volatility and reduced liquidity, which has impacted the company’s share price. In the near future, the company will be faced uncertainties, due to increased saturation of the UK market and the increased aggressiveness of the competitors’ actions.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 47.45 (as on 9th April 2020), while we look for any upcoming catalysts in the near term.

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