Me Group still cleaning up

Me Group International (MEGP) started life as a photo booth provider. It has since branched out into other products, such as out-of-home washing machines, and its equipment is scattered across train stations, shopping centres and supermarket car parks, mainly in continental Europe.

Demand for these products is proving extremely resilient. Revenue rose by 25 per cent to £144mn in the six months to 30 April 2023, fuelled by big price hikes and increased usage. Photo booths – which are still the biggest part of the business – increased sales by 25 per cent to £83.9mn, while turnover from laundry operations shot up by 37 per cent to £37.8mn. 

Me Group benefits from operational leverage, and the strong increase in sales translated into a 37 per cent rise in profit before tax to £27.2mn. 

Installing more machines is key to Me Group’s growth strategy. As such, capital expenditure increased by almost 50 per cent in the period to £21.1mn, and net cash shrank by 42 per cent to £24.4mn. However, the company remains extremely cash generative, meaning it should be able to sustain organic growth and generous dividends. 

Expanding its estate hasn’t proved entirely straightforward, though. Supplier delays slowed down the roll-out of new, more sophisticated photo booths, meaning the group is behind schedule. Meanwhile, it has entered a period of washing machine refurbishment and maintenance for the first time since 2012, which could prove pricey and time-consuming. 

The main concern for investors, though, still relates to official identification images. If governments continue to accept photos taken on smartphones, a major part of Me Group’s business could be under threat. For now, the traditional option is still popular. Hold. 

Last IC View: Hold, 93p, 20 Jul 2022