ME Group International (MEGP.L FTSE 250 Index, Market Cap £504m, 133.6p, 5.9 per cent of JIC Portfolio, (Medium Risk/High Reward, 5.0% target) www.me-group.com
“We develop and market value-added self-service vending machines. Today, we are a major player in sectors as diverse as photography, food and laundromats.”
Trading update for the year ended 31st October
Conclusion: A solid update demonstrating the strength of the group’s operating franchise. Investment in new machines leads to high cash flow returns as well as cementing its leading position in photobooths and laundry—the smaller Feed.ME operation has clearly stumbled, but not enough to materially impact group results. Pre-tax profits are expected to be no less than £67m compared with current forecasts of £64.9m (ShareScope), leaving scope for small upgrades. We will have to wait until February to see what dividend it plans, but given the strength of cash flow and the net cash on the balance sheet, another generous payout should be expected. It is expected to pay 6.6p for the year, yielding 5.0%. I expect upgrades to next year, ending 31st October 2024. On current forecasts, however, the shares are valued at 9.8x with a yield of 5.2%.
As Charlie Munger, who died yesterday, aged 99, said; It is better to invest in a great business at a fair price than a fair business at a great price. With Me Group at the current price, I think one can invest in a great business at a great price. I’m happy with my Medium Risk/High Reward rating and 5.0% target. I’m at 5.9%, having made 15% since buying the position in January. I expect further appreciation over the next year.
Trading update
Following a strong first-half performance, the Group continued to see positive trading momentum throughout the second half, particularly across its core Photobooth and Laundry operations, reflecting continued strong consumer demand. The Group expects to have delivered a record financial performance for the year, despite some operational challenges within its Feed.ME division, which has since been reorganised.
For the 12 months to 31 October 2023, the Group expects revenue to be marginally below the lower end of the previous guidance range1 but to be no less than £298 million. Nevertheless, given the Group's focus on profitability, EBITDA remains in line with the previously stated guidance range1 and the Group expects it to be significantly above £100 million. Profit Before Tax is expected to be towards the top end of the previous guided range1 and no less than £67 million.
Strategic Progress
The Group also made good progress in delivering on its five-year growth strategy.
Through technological innovation, the Group has continued to expand and diversify its services. The rollout of its next-generation multi-service photobooths is well underway, initially focused in France, with approximately 547 machines installed to date.
This next generation photobooth was developed by the Group's in-house R&D team and offers range of new functionalities, focused around enhancing the user experience. These new features include 'Mobile to Print', user personalisation services using AI and photo filters. The Group expects other new functions will be added over time.
The Group is currently installing approximately 180 next-generation units per month and aims to increase this to approximately 250 new installations per month during 2024.
At the same time, the Group is modernising the hardware of its existing photobooth estate and installing its new proprietary software at a rate of around 200 machines per month. This proprietary software enables the Group's engineers to quickly and cost-effectively upgrade each machine, remotely rather than needing to physically visit the machines.
During the period, the Group significantly extended its presence in Japan through the acquisition of 3,548 photobooths acquired from FUJI in September 2023, positioning the Group as the leading operator in the Japanese photobooth market, with over 15,000 machines in operation today.
Expansion of the Group's laundry operations also remains a key priority and continues at pace. More than 820 Revolution machines were installed during the year across the UK & Republic of Ireland and Continental Europe, bringing the total number of operating Revolution units to 5,533, representing growth of 16% in the total number of machines operated by the Group.
In line with its strategy to further diversify and expand the breadth of products and services offered by the Group, it continues to actively invest in R&D to drive technological innovation. With the next generation in Photobooths, the Group expects to trial and rollout new exciting features during 2024.
Financial Position
The Group remains well capitalised and in a strong financial position, with net cash of approximately £34.3 million and £4.3 million in convertible bonds as at 31 October 2023.
During the year, the Group repurchased £1.7 million of its ordinary shares and also paid dividends totalling £13.6 million (comprising of the final dividend for 2022 of £11.3 million and a special dividend for 2022 of £2.3 million). In November 2023, the Company paid its announced interim dividend for 2023, totalling £11.2 million.
Annual Results
The Group will publish its 2023 Annual Results in February 2024.
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