Touch screens are now accepted by all as a daily fact of life and very few of us walk around without one in our pocket at all times. There is another side to the industry, however, with touch technology becoming increasingly feasible in commercial settings.  That’s where Zytronic step in with their innovative range of customisable touch screens built for every purpose imaginable. The company has been successful to date, but can they keep pace in the high-tech industry that they operate in?

Screen Summary

  • A forward PER of 12.5x is reasonable, not particularly cheap but certainly wouldn’t be considered expensive either.
  • The PB ratio of 2.47x is less so, however, and would generally be taken as expensive.
  • Operating margins, at 17.3% most recently, are excellent.
  • As are returns on capital, which currently stand at 16.9%.

Company Background

An interactive mirror at Kite GB, the opticians.

An interactive mirror at Kite GB, the opticians.

Zytronic manufactures touch technology products from its base of operations in Blaydon upon Tyne.  The touch screens are used for all kinds of things but tend to be used for commercial purposes such as information kiosks, ATMs, gaming machines and military and medical applications.  Many of us have probably unwittingly used the products at some point and it seems fairly clear that their utility and relevance is high and will remain so for some time.

Zytronic originally listed in 2000 just as the tech bubble began to burst. For a business that was then only earning £4.5m in revenue and £200k in profits, it floated at an absurd price that promptly came crashing back to reality through 2001 and 2002.  It wasn’t the most promising start to listed life for the shares yet the underlying business itself was (and still appears to be) sound.

Financial Statements

Revenue has grown steadily since flotation, with only a few years seeing downturns in sales.  The downturns are to be expected given the low order book visibility that Paul Scott discussed with the management team here.  This will likely be an ongoing issue for the business but intelligent investors should be able to take advantage of any share price weakness due to a short term fall in sales.  The company also earns excellent gross margins (just under 40% at the latest interim reporting date) which gives the business more room for error in its cost management.  These high gross…

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