Play the momentum behind printing kiosks-to-photobooths operator Photo-Me International (PHTM) ahead of potential forecast upgrades as early as December’s half-year results. Forecasts for the instant service equipment group are conservatively pitched with the formal launch of its new laundry product set to generate positive earnings surprises.

Bright picture

Fully-listed Photo-Me owns and operates unattended vending equipment ranging from photobooths and amusement machines to digital printing kiosks and business service equipment. Guided by chief executive officer Serge Crasnianski, it operates everywhere from Japan, France and Germany to the UK.

Robust cashflow is generated through the core operations division which runs the unattended vending machines and underpins Photo-Me’s steady stream of dividends and potential for further special payouts. The Sales and Servicing division makes, sells and services the kit.

Last month’s (12 Sep) trading update flagged a promising start to fiscal 2014, with profits 10% ahead year-on-year despite lower Sales and Servicing revenues and the yen’s sharp decline versus sterling. Encouragingly, management reported another good performance from the European business, where photobooth numbers grew 7.5% and the £485 million cap is rolling out higher-margin photobooths designed by Philippe Starck.

Talking about a Revolution

Photo-Me’s European business is now seeing the early benefits of its new laundry product, branded as ‘Revolution’ and formally launched in France. For the past three years, Photo-Me has been developing this heavy duty laundry unit designed for washing and drying bigger laundry wares such as duvets and bedding.

Trials outside major supermarkets have been successful, helped by a competitive charging structure. With 275 units in the field at the 30 April year-end, Photo-Me is initially rolling out Revolution in France and Belgium. It has an ambitious stated target of between 2,000 and 3,000 units by the close of calendar 2015. Since Photo-Me already has an extensive engineer network infrastructure in place, it should be able to generate incremental revenues at modest extra cost, while there could be upside to EBITDA margins of 50% plus generated from Revolution units.

Catalysts for upgrades include expansion of the laundry division and how production in France will be supplemented by a lower-cost facility in Hungary from next month. In addition, Photo-Me’s nascent Chinese operation is gaining traction, having grown sales 30% in the opening four months.

House broker finnCap has built the initial benefits of the laundry launch into forecasts with a £1 million upgrade to April 2014 taxable profits, now expected to tumble in at £29 million for 18.8% growth in earnings to 5.7p. For 2015, £33.5 million profits and a 15.8% earnings advance to 6.6p are expected.

Photo-Me is forecast to finish the current fiscal year with £70.4 million cash in its coffers. This represents 14.5% of the current market value of the cash-generative concern, a company firmly on the front foot which merits its premium rating.

Photo-Me International (PHTM) 130.5p BUY

Stop loss: 104.4p

Market value: £485 million

Prospective PE Apr 2014: 22.9

Prospective PE Apr 2015: 19.8

1-month relative strength: 15.8%

1-year relative strength: 126.0%

Prospective dividend yield: 2.8%

Bid/offer spread: 0.8%