Zytronic PLC (ZYT:AIM)
In the current economic conditions it is rare to see a small manufacturing company that has been able to increase its dividend, reduce its debt, grow its profits by 58% in six months and improve its margins. But, Zytronics has scored on all counts.
The Zytronic Group consists of two companies; the parent company is Zytronic plc which was incorporated in 2000 and listed on the Alternative Investment Market (AIM) - the London Stock Exchange's international market for smaller growing companies. But the operating subsidiary Zytronic Displays Limited has been around since 1943 as a company in the Robertson and Magennis group of companies.
Zytronic Displays Limited had been largely involved in the manufacture of electronic displays and optical filters, used in a wide variety of industries from facial visors for the military and police, through radio frequency interference and electromagnetic interference (RFI/EMI) glass panels, to optical displays as used for instance on ATM machines. So, the company has a long track record in this field.
It was in June 2000, as part of a demerger from the Romag Group that the company changed its name to Zytronic Displays Limited.
The Group operates from three modern factories in Blaydon,Tyne, Tyne and Wear, UK. The company has been based here for 30-odd years and has a long-serving employee workforce of over 100.
Zytronic has introduced a family of touch sensors using its projected capacitive technology (PCT), marketed as ZYTOUCH, ZYPOS, ZYBRID and ZYSWITCH. Zytronic manufactures laminated glass by bonding two or three layers of glass together by means of a plasticised interlayer, polyvinyl butyral (PVB).
The manufacturing technology employed for ZYPOS® is unique to Zytronic and offers significant benefits to traditional users of resistive, capacitive and SAW technologies. Unlike other touch technologies, the active component of ZYPOS® is embedded for protection, providing a true safety laminated pure glass fronted construction. Not only does this produce a highly dependable, low-maintenance and durable system, it also offers unrivalled protection against a wide range of physical, mechanical and chemical abuse, providing the cost effective solution for the most demanding of applications such as POS, Gaming and In-vehicle equipment.
It is the company's touch sensor products that are of particular interest and this is where we see the huge growth potential for Zytronics PLC. The touch sensors are used in applications, including automated teller machines (ATMs), petrol pumps, ticketing machines, information displays, gaming machines, food retailing, jukeboxes, medical equipment, keypads, solar-powered parking meters,
diagnostic engineering equipment and helicopter simulation machines.
Its newest touch sensor, Zypos, aimed at self service, gaming and digital information display use, is driving much of the comapny growth. Sales of Zypos grew by 106% to £1.87m (£0.91m); overall sales grew 14% to £7.98m, despite a fall in sales of more traditional non-touch sensor products, such as filters. The touch sensor products, including Zytouch, used in ATM machines, now represent 62% of group sales.
The company has just won some exciting new contracts for their touchscreen technology from Coca Cola vending machines and bcode pty ltd and Sunvision Technology in Taiwan are now using their internationally award winning touch sensor products.
Strong demand for Zypos is cushioning the group from weaker sales to ATM manufacturers, where it is the preferred supplier to the world’s two biggest companies. Following completion of a £3m capital investment, strong cash generation has reduced net debt to £0.4m (from £1m as at 30/9/08).
Touch sensor technology has already started to pay off for Zytronic, in the last year.
In the six months to March 31st 2009, pre tax profits rose 58% to £1.05m.
The company, which exports 86% of its output, said currency benefits and improved production efficiencies in its new Zypos facility contributed to a 2.3% improvement in gross margins to 33.4%.
Earnings per share rose 58% to 5.2p and the proposed interim dividend increased to 1.2p from 1p. This represents a dividend yield of 2.33%.
John Kennair, chairman of Zytronic, said that despite the global economic conditions being the most challenging of his 38 years in manufacturing, Zytronic reported first half increases in turnover
The shares have been moving up and recently hit a high of 185p. They have pulled back to 180p recently. They are now trading on a P/E of 19.6. But we still see very strong upside potential for the shares.
This is a small company with a market capitalisation of Sterling 26.41million, so expect volatility in the price of the shares. If you have the stomach for volatility and are willing to take a longer term view, this is the type of investment that could make serious profits for your portfolio. Speculative shares like this should only make up a very small percentage of your overall portfolio.
Buy Zytronic PLC ( ZYT:AIM) up to 200p.