Low demand for touch screens in ATMs has created a tough environment for Zytronic (ZYT) in the first six months of the 2018 financial year. A 29 per cent fall in sales from the financial services sector dragged overall revenue and profits down and forced broker N+1 Singer to trim annual pre-tax profit forecasts to £5.2m, giving EPS of 27.5p (from £5.4m and 28.8p in 2017).
But we're not too worried. In fact, we think recent share price weakness has added to Zytronic's position as a takeover target. That's because next to its ATM business sits a highly successful gaming division, which counts fellow Aim-traded company Quixant (QXT) as one of its customers.
Quixant makes games machines for casinos and recently brought screen manufacture in-house via the acquisition of Densitron. Adding Zytronic's touch-screen capability to its repertoire could be its next step. We think a potential takeover looks all the more likely considering Zytronic is a quality operator: in the six months to March 2018, it turned more than 100 per cent of its trading profit into cash and doubled its half-year dividend. In the past three years, return on capital employed has averaged 19 per cent. Moreover, Quixant has recently made ex-Zytronic manager Martin Salter its business development manager, responsible for display and touch solution sales.
| ZYTRONIC (ZYT) | ||||
| ORD PRICE: | 408p | MARKET VALUE: | £65.2m | |
| TOUCH: | 400-415p | 12-MONTH HIGH: | 633p | LOW: 388p |
| DIVIDEND YIELD: | 5.6% | PE RATIO: | 15 | |
| NET ASSET VALUE: | 164p | NET CASH: | £13.7m | |
| Half-year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 11.3 | 2.5 | 13.8 | 3.8 |
| 2018 | 10.6 | 2.2 | 11.7 | 7.6 |
| % change | -6 | -13 | -15 | +100 |
| Ex-div: | 5 Jul | |||
| Payment: | 20 Jul | |||
