Zytronic

LONG-TERM BUY

07/12/2011 Ben Jaglom

Touch sensor manufacturer Zytronic (ZYT) reported a 22% rise in pre-tax profits following strong sales of its products for use in applications such as cash points.

The AIM-quoted concern declared profits of £3.6m on sales of £20.5m (2010: £18.5m) for the year to September. Earnings per share rose from 14.9p to 18.3p while net cash stood at £500,000. The total dividend for the year rose by 10% to 7.7p.

The results were driven by the 38% rise in turnover for its touch sensor products to £14.2m, with the company noting that it continues to win sales for 'outdoor applications' such as cash points, vending machines and self-service devices.

The total number of touch units sold increased by 65% to £121,000, helping to offset a weaker performance for its non-touch products, which sank from £8.7m from £5.7m, described by Zytronic as 'reverting to a more normal historical level' following a particularly good 2010.

In an interview with Growth Company Investor, chief executive Mark Cambridge noted that AIM-listed Zytronic had worked on projects including a touch screen for a Siemens cooker, as well as the use of its technology in payment kiosks used in the former Soviet Union for utility bills.

In addition, he remarked that its project with drinks giant Coca-Cola to develop an interactive vending machine was making good progress. Looking ahead, he opined that both Indonesia and Vietnam were currently being examined by the group as key areas for the business.

Analysts at house broker Brewin Dolphin are forecasting pre-tax profits of £3.8m (EPS: 19.5p) on sales of £22m for the year to September 2012. In 2013, profits of £4.1m (EPS: 21p) on revenues of £23.6m are pencilled in. A dividend of 8.7p and 9.6p is expected for 2012 and 2013, respectively.

Last recommended by Growth Company Investor this June at 235p, the shares have since slipped to 225p. Zytronic generates impressive margins with growing sales of its niche technology, while its respectable yield – currently 3.9% – adds to its appeal. Furthermore, the company can boast of a wide number of blue-chip clients, which should possess the firepower to help maintain its order book. We retain our long-term buy rating.