PHTM has 5 businesses;
-Photo Booths and biometric identification; about 60% of the business.
-Laundry; about 20% of the business
-High Quality digital printing; about 6%
-Fruit and juice machines; about 3%
-Assorted other machines; 11%
The company does not give proper segmental results with margins and profits by segment.
The photo booth business has been in decline for some time. The UK, a major market, now allows photos taken on the mobile phone for passports and the market for group photos, boyfriend/girlfriend pictures have moved to the mobile phone.
Whilst there are some good markets, there is growth in Japan, the need for photo booths is in structural decline and many booths are loss making. The company will improve profitability be reducing sales and their overall footprint.
It probably goes without saying that photo booths are a lousy business in a coronavirus lockdown.
Laundry does seem to be a potential growth business. Not only is there an existing demand to be met, the “Revolution” concept where the laundrette can be brought near to you (local supermarket car park, etc) seems to have legs. The downside for his is the capex for set up is quite high and it is not yet clear to me about the refurb or replacement schedule. If you have to buy a machine every two years there will be a lot less free cash than if you have to buy one every four. (All other things being equal). Again not a great business in lockdown on both the B2C and B2B front.
It is as yet unclear to me whether this is a good business at a yet to be reached sustainable size or just a potentially better business than photo booths.
Digital printing is mainly based in France and the company by its own admission see it as being in decline.
Other machines is another part of the business in decline and being reduced to preserve both capex and remove unprofitable units.
The company seems determined to bet its future on fruit and vegetable juice machines. These seem to have failed in B2C trials in France, but management believes they have a good product for restaurants and hotels with limited competition and they have existing photo me field engineers who can support the equipment. What funds are available are being directed largely into this area, particularly in R&D and capex.
This is effectively a roll out of the Sempa juicer brand that PHTM acquired last year. Sempa is a French brand.
For the year to 30th April 2020 the group made a PBT of £4m down from £43m. With a current market capitalisation of £210m it is clear that most regard this year’s results as not reflecting the business going forward. That being said it is clear that the management intend to make the business very different going forward and were investing strongly towards this pre C19. So I am not sure how valid historic numbers are either.
Management claim that within this figure are £24m of exceptional impairmants and provisions. However care must be taken with these figures. Firstly a number of these provisions seem inherent within the revised strategy. Yes, you can claim C19 effects but if you write down £1m over 5 years or £5m in one there is still at the end £5m written off. Secondly these impairments whilst large still leave almost £50m of goodwill and intangibles that may be impaired in the future and almost £90m of assets many of which are potentially impaired and if not will require further cashflow investment either to replace or repair. As such I think the asset backing in this business is potentially a lot less than the balance sheet initially suggests.
It is worth noting that the group cashflow was £20m negative. Whilst circa £10m of this was the Sempe acquisition the business was negative. Also the results were only to April 2020. The May, June even July lockdown effects are still to go through the numbers.
Given both of these factors it may well be some time before we see strong cash out of the business and this is dependant on delivering the new strategy. It is also to be noted that recently agreed lockdown funding whilst supporting the company does not allow dividends until it is repaid. Whether this was absolutely necessary or a way for management to keep cash in the business whilst they restructure I am unsure. Shareholders certainly can’t ask for a dividend if it already decided that they don’t get one.
Not in the accounts but one of the few bright spots from PHTM is that the CEO was a buyer of the shares in the open period before the results.
I hold some of these but there is nothing in this to cause me to increase my position. Nor anything to encourage me to suggest it as a worthwhile position. This may well turn out to be a value trap.
Following consideration on the day I put this out I have sold my position for about a 20% gain.