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Photo-Me
shares took off today despite news of flat sales, the impact
of the slowing US economy and product disappointment. It is
partly relief that the photobooth manufacturer and operator
had no further nasty surprises to unleash and partly revived
hopes for its digital mini-labs, writes
Caroline
Sefton.
The shares are up 7% at 70.5p.
Photo-Me's results reveal the intense pain of seizing
its digital opportunity. Writing down its analogue equipment
and stocks knocked £24m off its profits for the year to
30 April.
Ignoring this hefty exceptional, largely responsible for the pounding given to the shares at the interims in January, underlying pre-tax profits grew19% to £23.7m. Underlying earnings per share rose 37% to 4.01p.
The backdrop to the transition from analogue to digital has been far from helpful. Sales grew a slim 4% to £209m, reflecting the impact of weather, strikes and foot and mouth disease on photobooth traffic. Operating sales, based on running about 20,000 photobooths, were the problem - up just 1.5% to £163.4m. Manufacturing sales, helped by growing demand for its DKS digital minilabs, grew a cracking 33% to £45m, but make up just 22% of the total sales. After a slow start, Photo-Me is aiming for sales of up to 5,000 units by 2003.
Eastman Kodak, which has problems of its own, is the main customer for the minilabs. It bought 400 of the 700 units made in the year to April, earmarked for the Asian market. Production has speeded up since the year-end - Photo-Me made 150 units in June alone. In theory, demand should pick up once it is time to replace the 160,000 analogue minilabs worldwide.
Intuitively, rising demand for digital photo processing should speed up this minilab changeover. But it is hard to measure how quickly operators apart from Photo-Me will choose to act. Photo-Me can hardly avoid being at the bleeding edge of this technology and has already suffered an unpleasant cut. Other players may feel they can postpone the pain, at least until the economic outlook improves. The exposure of Eastman to the slowing US economy adds to worries about how sales of the minilabs will hold up. But chief executive Serge Crasnianski reckons about 80% of minilabs will convert over the next three to five years. Photo-Me is second in the world market for these labs, behind Fuji.
Problems with PhotoPlanet, a booth with internet access, cannot add to investors' confidence. Photo-Me has had to axe its links with British Telecom and modify the software in its original booth, ready for a relaunch - effectively - this autumn. Mr Crasnianski reckons it will have 800 running in the UK by the end of 2001.
Board changes last August, including the appointment of corporate heavyweight Vernon Sankey, quelled a shareholder revolt. The unattractive combination of heavy director share sales and a profit warning had rattled the big investors. But chairman Dan David and his family still own 30% of the shares. Mr Crasnianski owns a further 19%.
Analysts at Old Mutual are looking for about £27m pre-tax in the current year, giving 4.7p of earnings. At 70.5p, the shares are on a forward PE ratio of 15 - relatively modest for the media sector. But it is too soon to buy the Photo-Me argument yet.
Related comment: 18/1/2001,
17/8/2000
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