I have been bullish on vending machine operator Photo-Me (LSE: PHTM) for a while. It is almost a year since I chose it as my share of the month. The Photo-Me share price has risen 61% over the past year, so would have been a lucrative addition to my portfolio.
But I reckon there may be limited price upside left from the current position. Here is why.
Massive director buying
I have repeatedly flagged the fact that the company’s chief executive, Serge Crasnianski, has been steadily growing his ownership of the company. After a big share purchase last month, he now owns almost 138m shares in Photo-Me.
Following that transaction, Crasnianski and associated persons had interest in 36.5% of the company’s issued share capital. Under City rules, that means they need to make a bid for the whole company. This takeover bid has been pitched at 75p per share.
Bargain price
On one hand, this may look generous. After all, it is a premium to the share price before the bid was announced. It is also a substantial premium to where the shares have been trading for much of the past two years.
But I do not think that is the whole picture. After all, the Photo-Me share price had tumbled due to the pandemic. So, for example, the 75p a share bid level is a 22% discount to where the shares sat at the start of 2020. Worse than that, it is less than half of the Photo-Me share price five years ago.
The company did suffer during the pandemic, which explains its share price fall. But it has since been recovering. Indeed, trading performance in the company’s most recent quarter exceeded the board’s expectations. So, to me, the 75p a share offer looks like an opportunistic bid for the company at a point when its share price remains below its pre-pandemic level despite improving business prospects. That is legal and it is up to shareholders to decide whether or not to accept the bid.
Where next for the Photo-Me share price?
As the bidders already own so many shares in the company, I do not think it will be that difficult for them to get the required shareholder approval for the deal.
It is possible that some institutional shareholders will hold out for a higher price. If that happens, the bidders may add a sweetener, by increasing the offer price. But with their large holding and experience of the business, I think the bidders are in a strong position to be successful in their takeover attempt. For those reasons I also doubt any rival bid will emerge.
As the share price is currently hovering around the offer level of 75p, I see limited reasons for it to increase unless the bidders make a better offer. Paying more than the offer price for a share can lead to a loss if the offer becomes binding on shareholders. For now, I expect the bidders to wait and see how much shareholder support they can muster at the current level. So, although the Photo-Me share price has had a good run lately, I do not expect it to increase much from here. For that reason, I see no reason to add it to my portfolio now.
