Densitron – bright future ahead

Over recent years electronic displays group Densitron has undertaken a major restructuring exercise to streamline its operations. At the end of 2006 it sold its public information displays operation for £1 million, and at the beginning of 2007 the gaming arm was also disposed of.

The recent disposal of its 24.4 per cent stake in Taiwan-based display manufacturer Evervision completed the transformation. This generated £3.5 million and allowed Densitron to reward its investors with a 4p-per-share capital reduction and a 1p-per-share dividend – a significant chunk of the current share price. For income seekers the intention is to continue a progressive dividend policy, and on forecasts by house broker Westhouse such payments would be well covered.

The core business that remains is that of a designer and developer of electronic display solutions. These products range from LCD to touch screens and are used in applications such as pagers, hand-held terminals, control devices, cash machines, medical devices and even yachts. By using skilled engineers, it can provide a solution by customising display screens. The customer base is wide and includes Germany-based solar firm SMA and Orange.

Densitron has amassed a network of 35 different factories to source products from, which are largely in China. In a technology crazed world, demand for its range of technologies is on the up.

Orders booked last year soared 64 per cent to £21.8 million, as customers started to restock from recession lows. However, this recovery has continued with the current order book up 25 per cent to a robust £10.1 million.
The underlying performance in 2010 revealed a more than trebling of underlying profits to £700,000 (before the loss on disposal) – proof that Densitron is firmly back on the growth trail.

Densitron is targeting growth markets, with new displays and touch screen technology. Moreover, due to the relatively fixed nature of its cost base, as new orders flow through this drops straight to the bottom line.

The AIM-listed group employs 65 people and has a network of overseas offices to help win new business. With the help of distributors it sells into 35 counties so is well spread geographically. Last year 13 per cent of sales were recorded in the UK – proof of its international exposure. As its focus is on the i ndustrial marketplace, business tends to be repeat business.

Finance director Tim Pearson says, ‘Our markets continue to grow and the outlook is encouraging.’ Following the restructuring that has taken place and a refinancing exercise, Densitron has paid down substantial debts. It is now well positioned to continue its expansion and expects to deliver ‘substantial growth’ over the next three years. Organic growth is the most likely avenue for Densitron, but it will consider suitable acquisitions if appropriate.

Densitron also owns a 1.25 acre site in Blackheath, which is in the books for £500,000. It is a derelict strip of land on a private road and the plan is to seek development approval. An application for six houses at 4,500 square feet a go (such homes can sell for £2.5 million), has been rejected, but this is in the process of being appealed.

Value investor Peter Gyllenhammar owns a 29.8 per cent stake, however there are no notable institutions.

Densitron has valuable tax losses worth £1 million, which may take some time to exhaust due to its overseas operations. A trading update at the AGM on 28 June should confirm that current trading is strong.

With the shares trading on a prospective price/earnings ratio of seven, the rating appears anomalous. Westhouse predicts a 15p share price target, which is not unrealistic.