Not-For-Me
Posted on September 1, 2009 by Richard Beddard
Filed Under Companies |
In practice:
Just an opinion
Judging by the numbers, Photo-Me, the UK’s dominant photobooth operator is a buy. It’s ranked 26th on my list of good companies at cheap prices.
The shares cost eleven times average earnings (profits), which is cheap, but not desperately so, and it’s financially strong, scoring eight out of nine on the F_Score.
Many of the F_Score’s criteria measure change, so Photo-Me is profitable (ignoring exceptional items), and also the company is more profitable and consuming less cash than last year. A high F_Score can be a harbinger of recovery, rather than enduring financial strength, and that’s the more likely scenario. The company made a loss in 2008.
But the shares are only cheap if Photo-Me continues earning similar profits in future to its average profits over the last ten years, or better.
Unfortunately its future looks particularly uncertain.
For two years or more, hedge funds have vied with the company’s former chief executive, eighty year old Frenchman Serge Crasnianski. Crasnianski, who owns 22% of the company making him the largest shareholder, seems to be on top now having been appointed deputy chairman and acting chief executive while the board searches for a permanent ceo to replace Thierry Barel. Barel replaced Crasnianski when the hedge funds unseated him in 2007.
It’s easy to imagine Barel took the offer of a job in France to get away from his shareholders.
None of the infighting need matter, except it reveals a lack of confidence among insiders on the prospects for its photobooths.
Crasnianski tried to sell off the Vending division (now called Operations), which includes photobooths and children’s rides, in 2007, but, apparently because credit-strapped would-be buyers couldn’t raise the finance, he didn’t. In a subsequent strategic review, Barel decided to keep Operations but become less reliant on photobooths. Its other division, Sales and Servicing has a quarter of the revenues and is currently loss-making.
The company admits the photobooth business is mature, but its eagerness to dispose of it or develop alternatives hints at decline. These days, you can take passport photographs with a digital camera, upload them to Bonusprint and get them back in the post. The adoption of biometric passports, which could be an opportunity, is also a threat.
In France which, along with the UK and Japan, is one its most important markets, it seems likely that the Government will centralise the collection of biometric information in town halls, effectively nationalising it.
The company has many alternative products in different stages of development, but it’s difficult to establish how commercial or profitable they are. They include self-service kiosks where customers can print photos or books of photographs, biometric enrolment stations, machines that can charge your iPod, and Power-Me, which installs and sells small wind turbines.
But Photo-Me has a history of thinking up ways of building on its networks of photobooths that haven’t lived up to the promise (It’s not alone, in the 1950’s a manufacturer developed a photobooth on wheels so police could roll it to civil disturbances and photograph and tag people on the spot).
Tech investors will remember how Photo-Me planned to incorporate internet terminals in booths. More recently it’s become a supplier of digital mini-labs in chemists, supermarkets and photography shops but the exceptional losses this year are mostly from writing down the value of its investment in mini-labs.
It’s a shame, because Photo-Me is not a fly-by night company. Its shares have been listed since 1962 and Crasnianski has been associated with it for 45 years. Dan David, his superbly named ally, was on the board for 39 years between 1968 and 2007 and has also returned as a non-executive director.
Durability is an asset, but maybe its not enough this time.
It really annoys me if, when I’ve recalculated all the numbers and tried to understand a company, I lose faith in its future earning power. It’s annoying because it’s so easy to be wrong. Unlike the PE ratio, or the F_Score, it’s an opinion, not a cold, hard number.
For that reason I might ignore my own opinion, but only if the shares were an absolute bargain. They were when Photo Me’s finance director, who has now sadly died, bought £85,000 worth at 10p a share in December, but the shares are more than 27p now and therefore that much more risky.
In Theory:
An epidemic of green shoots.
Robert Shiller says recent optimism is more a social epidemic than economic reality.
Remember the ‘V’ says Ken Fisher, optimist. Two clients suing his firm for putting too much of their money into equities “will run into a concrete wall,” he says.
It’s a good time buy shares, says Monevator, because they’ve done worse than government bonds over twenty years.
Buttonwood says stockmarkets in fast growing countries do less well than stock markets in sluggish economies. The higher the price earnings ratio when you buy a market, the lower the return over the next ten years.
Interesting, says Greenbackd, what about price-to-asset values?
Adair Turner would tax financial transactions, Tobin taxes (named after the economist), to discourage speculation. Avinash Persaud agrees, but Justin Fox doesn’t think the tax would make much difference.
There’s worse ahead for the construction industry, says the FT, when public spending is cut.
Beware small, specialist Exchange Traded Funds, with high costs and big spreads, says the Wall Street Journal.
Robert Peston makes the case for public service journalism. Totally liberalised media would serve us no better than an overly liberal financial system did.
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