Snap up Photo-Me at your own risk

Take things slowly with Pace Micro; Paramount fails to whet the appetite
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The Independent Online

Shares in Photo-Me, a company that was massively-hyped in the internet boom, have once again been scaling the heights.

Shares in Photo-Me, a company that was massively-hyped in the internet boom, have once again been scaling the heights.

The question is whether the new excitement is justified and if you trust a chief executive who made millions by cashing in at the top of the internet euphoria - leaving ordinary punters to suffer when the stock came crashing down.

There seem to be very good reasons for looking again at the company. The reason? Digital photography. The company is worth over £500m again, as of yesterday - after it beat expectations by a huge margin with its interim results.

The problem with Photo-Me was that, at its heart was the unexciting business of old-fashioned picture booths in stations and supermarkets.

During the internet boom, the idea was that these would be turned into access sites for the masses. The shares hit 436.5p in early 2000 but two years later were languishing at 14.5p.

Photo-Me still has the booths business - it is the world leader - and these provide it with a steady cash flow business. But it also has two digital arms of the business.

One of these divisions manufactures professional digital-picture processing equipment. The other, newer unit makes digital photo-booths - where the public can pitch up with a memory card or picture taken on a mobile phone and get these instantly developed.

Digital photography has caught the public imagination and that is why Photo-Me shares have performed so spectacularly. And with good reason, as seen by the dramatic profit uplift in yesterday's interim results.

Photo-Me shares jumped 10 per cent yesterday to 144p, with analysts pushing up full-year profits forecasts by more than a third. The shares now stand at a stellar rating of 37 for the current financial year, falling to 27 for the following year.

The digital photo booth business is only just taking shape and is a very promising prospect. A risky punt for the brave.

Take things slowly with Pace Micro

After a couple of grim years - characterised by customers slashing their spending - the worst looks finally to be over for the set top boxmaker Pace Micro.

Interim financials were encouraging, showing not only that the company is back in the black but also that costs have plunged. Better still, there seem to be signs of an upturn.

Pace Micro made a pre-tax profit of £774,000 compared with a loss of £16.4m last time. Its annual overheads have fallen to about £40m - some £12m below last year - after it took the axe to its workforce. And sales were up 32 per cent to £110.4m.

While Pace recognises the days of stellar growth in the UK are largely over, it believes there is an opportunity here. It also has high hopes for Europe and the US, where it is thought to have market shares of about 10-20 per cent and 1-2 per cent.

So much more confident is the company in its prospects, it is looking at paying out a dividend in the second half of the year - something it hasn't done since May 2002. There is also a currency benefit in Europe.

Analysts are predicting Pace will make a profit of about £5m this year, translating to earnings of about 3.2p. That puts the stock on a multiple of 19.5 times, for this financial year, which drops to about 13.6 times for the year after.

The improvement has not, of course, gone unnoticed by the stock market. The shares closed up 4 per cent higher last night at 62.5p, but after the strong rally over the past few months, it's just a hold.

Paramount fails to whet the appetite

Britain's appetite for steak and chips is returning. Paramount, the cash shell that took over the ailing Chez Gerard restaurant chain last year, yesterday said sales were up an impressive 5.7 per cent over Christmas.

Chez Gerard, which also owns the Italian brand Bertorelli's and the fish outlets Live Bait and Café Fish, is predominately based in London, which was hit by a general economic downturn and a fall-off in tourism. This, combined with a lack of investment that led to increasingly jaded-looking restaurants, saw Chez Gerard lose its place at the top table, and its shares sunk from as high as a £1 to little more than 17p.

But since the Paramount takeover, in April last year, it has sold-off five loss-making sites, revamped its menus and refurbished its restaurants. A top Italian chef is now at Bertorelli's and lobster thermadore is back on the menu at Café Fish by popular demand. Paramount yesterday said its four brands were now profitable.

Valuing Paramount, however, is rather tricky as there are no forecasts in the market. The City gave up after Chez Gerard last year, and there is also little to compare it with, as listed restaurant groups have all but disappeared into the hands of private equity groups.

The business does seem to be getting back on track but it is not out of the frying pan yet. The shares have more than doubled in the past year but with little information to go on, it is best avoided.

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