Me Group reports record profits

Me Group (MEGP) is still pleasantly surprising the market. The vending machine company achieved cash profits of over £100mn for the first time in 2023, on the back of strong demand and estate expansion. 

Photo booths remain the biggest part of the business, accounting for almost 60 per cent of total sales. Sceptics argue that this mature division will struggle as smartphone images become more widely accepted. For now, however, it is still growing – fast. Revenue increased by 12 per cent to £173mn in the period and cash profits rose by 14 per cent to £61.8mn. 

Management attributed this to the installation of more photo booths and price increases. The number of transactions has stayed “stable” from year to year.

The laundry division is the key driver of growth, however. Sales were up 32 per cent year on year at £81.6mn, while cash profits jumped by 36 per cent to £39.5mn. This was fuelled by higher demand and more machines in operation (the average revenue per machine was up 15 per cent at £14,793). Laundry is also more profitable than any other activity: it has a 48 per Ebitda margin versus the 36 per cent group average.

The company is ploughing the majority of its capital expenditure into Wash.Me to keep rolling out more machines. It has also entered a period of machine refurbishment and maintenance, the first since laundry operations were launched in 2012.

Me Group has underperformed the FTSE 250 by roughly 20 per cent in the past six months, which seems at odds with its operational performance. However, it doesn’t look cheap by historic standards: it is trading on a forward price/earnings ratio of 9.6 times, versus a five-year average of 8.9 times. We stick with hold. 

Last IC view: Hold, 168p, 12 Jul 2023