Years of rampant growth has led investors to expect big things from Zytronic (ZYT). That explains why a slight dip in turnover sent shares in the touchscreen technology specialist down 7 per cent, as the market refused to acknowledge the positive long-term implications of a technology-driven switch to more profitable lines of work.
Given that the rapid transition from glass displays to touchscreens in everything from ATMs to museums was already flagged by management, the market reaction looks excessive, particularly when you consider the positive effect these structural changes are having on the bottom line.
Brisk demand for larger touch sensors used in casinos and vending machines was largely responsible for widening the gross margin by 2.4 percentage points to 42.3 per cent and driving operating profit up 8 per cent to £1.8m. This performance suggests management's efforts to expand its global sales reach in higher-margin areas is paying off nicely. A larger portion of more profitable revenues also played an important role in boosting net cash by 12 per cent.
N+1 Singer responded to this encouraging news, and a lower projected tax rate, by bumping up its forecasts. It now expects adjusted pre-tax profits of £4.7m in the financial year to September, giving EPS of 25.9p (from £4.5m and 24.3p in FY2015).
| ZYTRONIC (ZYT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 390p | MARKET VALUE: | £60m | |
| TOUCH: | 387-393p | 12-MONTH HIGH: | 437p | LOW: 275p |
| DIVIDEND YIELD: | 3.2% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 137p | NET CASH: | £9.5m | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2015 | 10.0 | 1.6 | 8.7 | 3.14 |
| 2016 | 9.9 | 1.8 | 9.6 | 3.45 |
| % change | -1 | +8 | +10 | +10 |
Ex-div: 7 Jul Payment: 22 Jul | ||||
