Zytronic

Zytronic, the maker of touch sensors for electronic displays such as cash dispensers and jukeboxes, is growing profitably and expanding margins amid the economic malaise.

Newcastle-based and bossed by CEO Mark Cambridge, Zytronic recently unveiled sparkling annual financials to September, showing pre-tax profits increased more than 30% to £2.3m. Gross margins improved from 32.2% to 34%, driven by a better business mix and efficiencies arising from new manufacturing facilities.

In spite of recessionary pressures, turnover was lifted by more than 8% to £15.9m, driven by touch sensor sales, which grew by more than 18% to £10m and rose as a proportion of total turnover to 63% (2008: 58%). Further annual highlights included 55% growth in sales of ZYPOS sensors, with the gaming sector proving lucrative and the company having success in the vending and dispensing machine markets. Significantly, the company’s touch sensors have impressed drinks giant Coca-Cola, while the white goods sector offers additional growth possibilities.

In another welcome trend, Zytronic, which added distribution coverage for Japan, Turkey and the Pacific Northwest of the US last year, continues to grow export sales, which now account for 85.9% of turnover, up from 79.4% a year ago.

Strongly cash-generative, Zytronic, which upped the total dividend 25% to 5p, is forecast to grow profits and earnings to £2.6m and 12.6p respectively in 2010, ahead of £2.8m and 13.6p by 2011. On those estimates, the shares, recommended by Growth Company Investor at 113.5p in February, are selling for 16.9 times this year’s earnings and 15.6 times next.

Given Zytronic’s recent track record, progressive dividend policy and improving global growth potential, they remain great value. Buy/hold.