Photobooth Decline Will Persist As Digital Shifts Will Soften Downside

Key Takeaways

• Heavy dependence on expanding machine installations and pay-per-use transactions exposes the company to revenue volatility if demand softens or markets saturate.
  
• Digital adoption and automation trends threaten the core photobooth business, risking structural revenue declines and increased competition from tech-savvy service providers.
  
• Heavy reliance on mature physical services and slow digital progress expose the group to secular decline risks, volatile earnings, and intensified competition from digital-first providers.

Catalysts

Operates, sells, and services a range of instant-service equipment in the United Kingdom.

• While ME Group has delivered record profitability and is rapidly expanding its laundry operations to capture growing urbanization and consumer demand for on-demand self-service, this growth is heavily reliant on sustained high rates of new machine installations; should accessible white space in mature or emerging markets diminish, revenue growth and future operating leverage gains could normalize or decline.
  
• Although management is investing in innovation and next-generation product rollouts, evolving automation trends could accelerate cost savings and customer adoption, however, the core photobooth business remains exposed to technological obsolescence and pressures from smartphone adoption, which may result in declining utilization rates and structurally lower revenues over time.
  
• While growing demand for digital identification and compliance services sustains current relevance for photobooths, the global shift toward digital ID solutions and increasing digitization of official document processes may eventually undercut the company's largest revenue contributor, threatening long-term revenue stability.
  
• Despite geographic diversification and ongoing expansion of eco-friendly solutions-both of which could support recurring revenue growth and margin expansion-a large, fixed asset base and the company's transactional, pay-per-use business model leave ME Group highly sensitive to declines in footfall or transaction volumes, which may compress net margins and place future earnings at risk.
  
• While advancements in IoT-enabled monitoring promise higher machine uptime and operational efficiency, rising competition from larger service providers with advanced digital capabilities and subscription-based models may erode ME Group's market share and limit its ability to shift toward higher-margin, recurring revenues, putting pressure on both top-line growth and longer-term profitability.

ME Group International Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ME Group International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ME Group International's revenue will grow by 8.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 18.3% today to 18.1% in 3 years time.
• The bearish analysts expect earnings to reach £71.9 million (and earnings per share of £0.19) by about August 2028, up from £57.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.2x on those 2028 earnings, up from 13.6x today. This future PE is greater than the current PE for the GB Consumer Services industry at 14.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.31%, as per the Simply Wall St company report.

ME Group International Future Earnings Per Share Growth

Risks

• The group remains heavily reliant on its mature photobooth business, which experienced a revenue decline even after accounting for one-off supplier issues, and this core segment faces secular threats from increased digitization of identification and authentication that may drive down both revenue and profitability over time.
  
• The business's transactional, pay-per-use model risks lagging behind broader industry moves toward recurring digital services and subscriptions, potentially restricting its ability to capture stable recurring revenues and making future earnings more volatile.
  
• Expansion and profitability depend on sustained high rates of new laundry machine installations, but long-term growth is primarily driven by adding new sites rather than increasing per-unit usage, which creates significant dependence on continued physical expansion to drive revenue and EBITDA growth.
  
• High operational leverage from a large fixed asset base means falling transaction volumes or market saturation could quickly erode net margins and group earnings, especially if the pace of new installations slows or utilization drops.
  
• The group has not demonstrated substantial progress in digital and software-based platforms, leaving it exposed to competition from larger service companies with stronger digital offerings and threatening future revenue and margin growth as consumer and government preferences shift away from physical kiosks.

Valuation

• The assumed bearish price target for ME Group International is £2.35, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ME Group International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £3.05, and the most bearish reporting a price target of just £2.35.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £397.5 million, earnings will come to £71.9 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of £2.05, the bearish analyst price target of £2.35 is 12.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.