Vending machine operator Photo-Me International (LSE: PHTM) has had a good March so far. I picked it as my share of the month for March, because I was hopeful about its prospects. Nonetheless, with a gain of over 25% between the start of the month and today, I am impressed at the recent performance of the Photo-Me share price. Sitting only 16% higher than it was a year ago, the share’s performance so far in March has helped reverse its prior weak performance.
Here I look at what has driven the jump and what I would do now.
Not out of the woods
The company released its preliminary results last week and they contained mixed news.
On the positive side, the company’s laundry machines have proven to be resilient. Despite the name Photo-Me, photo booths are only one part of the company’s operations now. Its Revolution laundry machines at sites like garage forecourts are 7.7% of the total vending estate and continue to growth. Accessible through lockdown, these machines’ revenues have held up much better than the likes of photo booths or children’s rides.
Despite the challenges of the pandemic, these laundry machines’ revenue grew by 13.8% in the year, as the company rolled them out more widely. I see laundry machines as a smart way to capture recurring revenues from a captive market. Most households do their laundry at least every week or two, but they might not need passport photos from one year to the next. That brings us to some challenges to the Photo-Me share price, in fact.
Revenue in the identification business was down 26.3%. In the British Isles, it fell by over half, although the company has taken a lot of efforts to reflect changing demands by decommissioning photo booths and spending money on laundry machines instead.
The company swung to a £24.9m loss in the 12-month period from a £33.6m profit the year before. Areas like photos and children’s rides continue to be affected by lockdowns and limited travel. Clearly the company continues to face a difficult environment when it comes to reduced demand. Even if it swings into profit again, its ability to pay a dividend is constrained until it repays a loan backed by the French government.
Positive momentum for the Photo-Me share price
Given the challenges it faces, why do I remain upbeat about the company? Why has its chief executive continued buying shares, including more than half a million last week when the shares still traded at 51p?
I think the latent potential in Photo-Me is very clear. It understands vending very well, from where the best sites are to how to service machines cost effectively. It is focussing on future growth areas, like laundry machines and fresh fruit juice vending. Demand has been battered and even post-lockdown some demand might not come back. For example, the passport photo could be in terminal decline in markets where digital photos are the norm. But I feel the company’s management is taking steps to prepare it for changed demand and future growth areas.
The Photo-Me share price has performed strongly this month, as I hoped. But I see further upside potential from here if business lines like self-service laundry keep growing. I would still consider buying.