- Weak yen hurts sales and earnings
- Underlying growth remains strong
- Firm keeps full-year profit guidance
Vending machine operator ME Group (MEGP) posted a positive trading update for the six months to the end of April and said it was ‘confident in delivering record profitability for the year, in line with market expectations’.
However, shareholders appear to be unnerved by some of the detail as the stock price declined 8p or 4.7% to 162.4p taking it to the bottom of the FTSE 250 leader board.
CURRENCY HEADWINDS
The firm reported positive trading momentum had continued throughout the first half with revenue up 8.6% on a constant-currency basis and pre-tax profit up 13.6% on the same basis.
However, adjusted for currency movements, in particular the Japanese yen which dropped 15% against the pound during the period, revenue growth was only 4.6% and profit before tax registered a 10.3% increase.
Photobooths showed a steady performance during the half, with revenue up 7.4% (but just 2.3% on an adjusted basis) driven by demand for official photo ID and the integration of more than 3,500 booths previously acquired in Japan.
The Wash.Me laundry machine business was once again the fastest-growing area with underlying revenue up 19.6% (17.4% on a currency-adjusted basis) as the number of Revolution machines in operation grew 18% on the previous year.
The group continues to roll out its machines in high-footfall locations such as supermarkets and petrol forecourts, and its pipeline suggests it will deploy a record number of machines this financial year.
EXPERT VIEW
Analyst Eleanor Spencer at Berenberg argues investors should focus on the double-digit growth in underlying and adjusted pre-tax earnings and the roll-out of Revolution laundry machines, which is accelerating.
While laundry machine revenue grew 17% in the first half, Spencer believes based on a pick-up in second-half instalments sales at the Wash.Me division could increase by 25% or more in the six months to August taking the full-year increase to 21% or thereabouts.
Spencer calls the current valuation of the shares ‘appetising’ and says while further currency movements ‘may pose a risk to headline sales growth, ME Group's improving business mix - driven by Wash.ME - and the strong underlying growth rates across both divisions offer confidence it will hit its before-tax profit expectations’.
