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Improving Zytronic still looks cheap

The touchscreen technology specialist is driving profits on a favourable business mix.
May 18, 2017

Zytronic (ZYT) carried on where it left off at the year-end, only this time around operational progress was reflected in increased profitability. Last year's statutory figures were constrained due to foreign exchange hedging costs, but with operating profits 43 per cent to the good year on year at £2.52m, there's little doubt that the touchscreen technology specialist has returned to rude health since 2013's profit warning.

IC TIP: Buy at 463p

The gross margin at 43.1 per cent was 80 basis points ahead, aided by a noticeable increase in demand for higher-margin large screens and multi-user sensors, as utilised in vending machines, gaming systems and bank ATMs. The total number of touch screens shipped increased 4 per cent to approximately 64,500, with exports helped along by sterling's post-referendum decline. However, Zytronic's non-touch sales fell from £1.6m to £1.3m, although this was foreshadowed, a reflection of changing demand trends.

The balance sheet is in decent trim, with net cash up by £900,000 since the year-end. And a capital reduction scheme completed in March has freed up £8.9m of the group's undistributable profits. The company says this gives it "further flexibility in relation to the payment of future dividends", although there is no explicit news on management's intentions.

House broker N+1 Singer maintained existing forecasts, with adjusted profits of £5.4m for the year ending September 2017 giving EPS of 28.6p (from £4.3m and 26.1p in FY2016).

ZYTRONIC (ZYT)
ORD PRICE:463pMARKET VALUE:£73.5m
TOUCH:460-465p12-MONTH HIGH:485pLOW: 315p
DIVIDEND YIELD:3.2%PE RATIO:15
NET ASSET VALUE:155pNET CASH:£12.5m

Half-year to 31 MarchTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20169.91.89.63.45
201711.32.513.83.80
% change+14+44+44+10

Ex-div: 6 Jul

Payment: 21 Jul