Small Cap Value Report (Thu 16 Feb 2017) - ZYT, TRI, ALY

Thursday, Feb 16 2017 by

Good morning!

It's Paul here. I arrived back in the UK at about 4:30 this morning, after a very pleasant overnight flight on an A380, from Hong Kong. I've been looking forward to my first flight on an A380, and really enjoyed it. It was very quiet on the upper deck, with little engine noise, so I managed to sleep for some of the journey. Hence me being sufficiently with-it to be able to do some writing about small caps this morning. Also I limited myself to only 4 glasses of champagne on boarding the plane, which means a fairly clear head today!

Thanks to Graham for holding the fort whilst I was away. It was my first ever trip to the Far East, but definitely won't be my last. I absolutely loved Hong Kong - clean, modern, marvellous service, and full of pleasant, courteous people - what more could you wish for? I'm sure many (probably most) readers here have been there too.

Right, on to today's small cap news.

Zytronic (LON:ZYT)

Share price: 385p (pre market opening)
No. shares: 15.9m
Market cap: £61.2m

(at the time of writing, I hold a long position in this share)

AGM Trading update - a brief update today, saying;

Further to the outlook statement given in December 2016, revenue and trading year to date has continued to be ahead of the equivalent period and remains in line with management's expectations.

That's fine by me - a solid update. Note that broker consensus earnings forecast has been increasing over the last year, which is clearly a positive thing;


Exports/forex - note that Zytronic is a UK manufacturer of bespoke touch screens, which exports 95% of its production. Therefore the devaluation of sterling has been excellent news - in making Zytronic more competitive against overseas competitors.

The benefit has to date been blunted by forex hedging, but we should see gains begin to come through in the current year (ending 30 Sep 2017). This is a very nice tailwind for the share, and should mean a double benefit of increased sales & margins.

Valuation - Zytronic always seems to look cheap. Perhaps that's because there's not really much growth going on? The figures below also don't allow for the fact that ZYT has a terrific balance sheet, with net cash of £11.6m when last reported…

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Zytronic plc is involved in developing and manufacturing of touch sensor products. The Company is also engaged in the development and manufacture of customized optical filters. Its geographical segments include Americas (excluding USA), USA, EMEA (excluding UK and Hungary), Hungary, UK, APAC (excluding South Korea) and South Korea. Its products incorporate an embedded array of metallic micro-sensing electrodes. Its technologies include projected capacitive technology (PCT) and multi-touch mutual projected capacitive technology (MPCT). PCT touch sensors can be constructed from one, two or three layers of laminated, toughened glass. Its sensing products offer touchscreen solution for applications, such as leisure, digital signage, retail, surfaces, banking and industrial applications. Its touch sensors are used in video jukeboxes and slot machines. The PCT touch sensors are used in a range of workplace applications, from medical diagnostic equipment to oil field machinery controls. more »

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Trifast plc is a manufacturer and distributor of industrial fastenings and category C components to a range of industries and customers. The Company designs, manufactures and distributes mechanical fasteners on a global basis to both distributors and to original equipment manufacturer (OEM) assemblers. Its geographical segments include the United Kingdom, Europe, the United States and Asia. It owns a range of fastener solutions for specific industries and applications, including fasteners for sheet metal, fasteners for plastic, security fasteners, thread-locking nuts and micro-diameter fasteners. Its brands include Pozidriv, Polymate, Binx and Hank. Its products are used in various markets, such as automotive, electronics/telecoms and domestic appliances. It operates in Norway, Sweden, Hungary, Ireland, Holland, Italy, Germany, Poland, Malaysia, China, Singapore, Taiwan, Thailand and India. Its subsidiaries include Trifast Overseas Holdings Ltd and TR Formac Fastenings Private Ltd. more »

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Laura Ashley Holdings plc is engaged in designing and manufacturing products for home and fashion. The Company's segments include Retail and Non-Retail. The Retail segment includes sales through Laura Ashley's Managed Stores, Mail Order, e-Commerce and Hotel. The Non-Retail segment includes licensing, franchising and manufacturing. The Company's property portfolio in the United Kingdom includes approximately 190 stores. The Company's United Kingdom business includes the Home Accessories, Furniture, Decorating and Fashion categories. The Furniture product category includes upholstered and cabinet furniture, beds and mirrors. The Home Accessories product category includes lighting, gifts, bed linen, rugs, throws, cushions and children's accessories. The Decorating category includes fabric, curtains, wallpaper, paint and decorative accessories. The Fashion category includes adult fashion, fashion accessories and perfumery. The Company also holds interests in the Laura Ashley hotel. more »

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  Is Zytronic fundamentally strong or weak? Find out More »

36 Comments on this Article show/hide all

Cleeve 16th Feb 17 of 36

Paul welcome back, I love Hong Kong, they never say no as a city and are very industrious next time try the upper house hotel I used to stay at he mandarin but this the upper house beats it, can get you a great rate if you need it. Can you look at avation for me as on the surface the interim seem good

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bestace 16th Feb 18 of 36

I agree that lack of strong top line growth seems to be the issue with Zytronic (LON:ZYT). The narrative of transition from non-touch to touch revenues does have some merit, but even within the supposed growth area of touch screens, growth seems to have slowed over the last year to around 5% compared to 16% the year before. These are the half year breakdowns for the last few years:


There also seems to be transition going on within the touch screen segment from small and medium screens (less than 30") to large screens:


Although large screens have higher margins and higher revenues per unit , sales volumes are also much lower as the chart shows. My concern is that by focusing on the larger screen sizes, there is a greater risk of sales lumpiness with resulting gaps opening in the order book like happened in 2013.

This is compounded by the fact they are pretty dependent on a few core customers - in the risks section of the 2016 annual report they mention 'reliance on key customers', where they disclose that 'the Group has 61% of its revenue from three key customers'. This is the first time this risk has appeared in their annual reports and is the only risk listed which they classify as 'major'.

I continue to hold, but am watching the top line figures closely. It would have been helpful to know what the 'management expectations' are that they refer to in today's RNS.

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tomps3 16th Feb 19 of 36

Paul, welcome back!

If you, or any of your readers would like to see Creightons (LON:CRL), Idox (LON:IDOX) or Cohort (LON:CHRT) present, next Tuesday 21st February, 2.30pm, please join us!

We've arranged an hour's presentation by each in London, WC2.

They're interesting companies, so I hope you and your readers, don't mind me flagging here!

Creightons (LON:CRL) first came on my radar at Mello, and are up over 100% since.

Idox (LON:IDOX) has had a change of CEO, so this is an opportunity to hear the new CEO, Andrew Riley, and his thoughts going forward. Forecasts seem to be on the upgrade.

Cohort (LON:CHRT) have benefited from fx, and may give a sense of MoD spending plans, which might help them. And an update on each of the divisions.

(Contact: Tamzin

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simoan 16th Feb 20 of 36

Hi Paul,

Hong Kong is great but I wouldn't swap it for Tokyo! My favourite city by a wide margin :) 

On jet lag... I basically never sleep on the plane when travelling East; only when travelling West. Travelling East because time "compresses" I just treat it as a long day. Travelling West I always try to sleep and book flights that arrive early morning at the destination. It works well for me and I hardly get jet lag but realise everyone is different. Of course, if you had a hard night on the town before the flight it may not be possible to go without sleep :)

For me Laura Ashley Holdings (LON:ALY) is uninvestable because the management don't seem to give a damn about other shareholders. The reports are terse in the extreme and they don't seem to bother with trading updates between results. The dividend cut was evident from the last announcement so I'm not sure anyone could claim they never saw it coming although true to form there was no guidance on dividend policy by the management. Hopeless! I'm surprised you held as long as you did. You paint the idea of a management buyout as maybe a good thing but the dominant shareholder can practically name his price so any holders expecting any kind of premium to the prevailing market price are being extremely naive IMHO.

All the best, Si

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paraic84 16th Feb 21 of 36

The other threat to Laura Ashley Holdings (LON:ALY) in the UK is from more fleet-a-foot primarily online players like Made, Sofa, and Loaf (such a shame they are not listed!). Their styles are much more modern whereas Laura Ashley only seems to cater for 'Country House' style. I remain unconvinced about its international growth prospects: it has been saying for years that it is excited by Asian growth prospects yet nothing ever materialises. I think it's a value-trap.

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bobo 16th Feb 22 of 36

TRI, the good thing about this company from a customer point of view is that they are very good at what they do, probably the best world wide. The Problem they have is their competitors are only just slightly not as good. So differentiation is tough to achieve and hold. I see no real growth opportunity in the business, just more of the same old.

ALY; well after the Singapore office buy I don't trust the board. So not one for me. The Brand is good but the assets are just too dodgy, what happens if they decide to buy something else unconnected.

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Mark Carter 16th Feb 23 of 36

As one poster commented on another bulletin board about Laura Ashley Holdings (LON:ALY) :

All been downhill since that dodgy unnecessary property transaction in Singapore - couldn't trust them after that. Stopped me from buying in.

Sums it up, really.

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RMundy 16th Feb 24 of 36

Welcome back Paul. And I don't believe the "just 4 glasses of champagne" for a moment!

Website: Research Tree
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daveinthelakes 16th Feb 25 of 36

In reply to Paul Scott, post #3

Hi Paul,
Not pure video conferencing but methinks the tech may be moving ahead of LoopUp judging by today's release from IBM-

"The Intelligent Workplace Solution leverages IBM Watson IoT and Ricoh's easy-to-use interactive whiteboards to change the way teams meet and collaborate through new intuitive features that can be accessed using natural voice. It makes sure that Watson doesn't just listen, but is an active meeting participant, using real-time analytics to help guide discussions so teams can make faster, better and more informed decisions.

Most companies find that the majority of information shared and discussed during meetings may be lost or forgotten. Ricoh is incorporating this new powerful, innovative solution into its broader set of service offerings to help customers continually improve meeting collaboration and productivity. Likewise, IBM sees a range of more complex smart meeting support functions in the future, thanks to Watson's learning capabilities"

Regards, Dave.

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ACounsell 16th Feb 26 of 36

Hi Paul,

Could I echo Trident's question about situation at Tracsis (LON:TRCS). Graham did a useful review yesterday which suggested that things looked a bit 'iffy'! but given your previous contacts with the company's management team do you have anything you could add. The share is down 30%+ since the start of of the year (most of it in last two days) and if I was following the Stockopedia publication 'Proft Warning Survival Guide' then I should have sold my holding immediately! This would seem to be the view of the market with the share price hit very hard but I am hanging on at the moment as unlike the 'Profit Survival Guide' data it seems every share I sell on a profit warning/stop loss (20-30%) comes back and moves well ahead of my sale price (Avon Rubber (LON:AVON), Staffline (LON:STAF), SCISYS (LON:SSY), iomart (LON:IOM), Entertainment One (LON:ETO) to name a few) within a few months!

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janebolacha 16th Feb 27 of 36

Are Laura Ashley Holdings (LON:ALY) actually even using much of the Singapore property?

I ask that because there seem to be property listings to rent out space in that building:

It is quite likely they could simply have rented themselves last year the exact space they needed for their own business, rather than buying in a toppy market there.

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WDWombat 16th Feb 28 of 36

I listened to a ZYT interview a couple of years ago but never bought though I thought it sounded pretty good and as you rightly say at worst the finances appear more than solid. However I was just wondering whether there might be an impact from the tightening regulations about to hit betting shop machines?

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Trident 16th Feb 29 of 36

In reply to ACounsell, post #26


Very difficult in such an illiquid share as Tracsis to sell shares and not absolutely clatter the price. It seems to be plunging towards a more average market multiple form the high it had. There hasn't actually been a profit warning but the market has treated it as if it has. As Graham indicated, it has used slightly more tentative language about sales in the second half, but has broadly said the second half will be stronger than the first.
I suspect one division has materially underperformed, but the business acquired last year, which is pretty profitable, has filled the hole left and so overall it is slightly up against the prior year.
But it would be nice to hear from the CEO. It's always easy to do PR when the market and business performance is with you!

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peterthegreat 16th Feb 30 of 36

I agree with Paul's opinion on the quality of Zytronic but one of the reasons I bought it several years ago was its conservative management and non-aggressive approach to growth so I am happy to see the company's "steady-as-she-goes" strategy which I believe over the long term will benefit me without incurring too much risk.

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Fangorn 16th Feb 31 of 36

Hong Kong is a superb place indeed Paul.So much to see, so little time.

Lived there for 10 years in late nineties/noughties. Visits these days always coincide with the last weekend of March/or more recently the 1st weekend of April. Those in the know will understand why..

Honkers has changed considerably, It's gone full circle expat entertainment wise over last couple of years with Soho/Bars off Escalator gaining in popularity once again(as it was in mid to late 90's when I first moved out there.)

So much construction going on since I left in 2008 however and favourite restaurants ion California tower since closed. Indochine, and Thai Lemon grass.

Hong Kong will always be a home away from home.

If you're intent on venturing out to Asia again...Tokyo is a must. As is Singapore/Malaysia(part of the Orient Express was still in operation in early noughties)

and then you have Cambodia, Vietnam, Korea, Thailand...and Bali is but a short hop too.

That's before Australia, NZ, and Mainland China..Shanghai is quite amazing...

Europe is insignifcant by comparison. Asia is the future. very fond memories of decade out there.

p.s Vis Mandarin hotel, has to be the old one, with the Captain's bar - New Mandarin a tad pretentious, and frankly, naff.

I hope you did Tea at the Peninsula, or Champers at the Felix bar atop the Peninsula in TST

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Wildrides 16th Feb 32 of 36

"Only four glasses of champers on the fight home" ...........good grief man ........I would be on the floor giggling like a three year old girl . Goes right to my head that stuff .

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gbengus50 16th Feb 33 of 36

Welcome back Paul,thanks for the update.I recently bought ZYT for the dividend yield as would be watching how it goes.

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back2value 17th Feb 34 of 36

Paul, if you think Hong Kong's full of pleasant, courteous people, wait until you have the chance to visit Japan.

We can guide you.


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andyhorton 17th Feb 35 of 36

Hi Paul
Couldn't agree more with ALY - I held on for 15 months after buying and suffering an immediate drop in the share price. Two reasonable divi payouts were the only consolation.
Also is there any truth in the rumour that Amazon have brought out a similar product to Loopup's? Can't understand the masssive drop back............
Best wishes, Andy.

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simoan 17th Feb 36 of 36

In reply to janebolacha, post #27

Are Laura Ashley Holdings (LON:ALY) actually even using much of the Singapore property?Jane,


I think you're missing the point... Laura Ashley Holdings (LON:ALY) is a property company with a sideline in chintz :). Of course, we also need to mention the ridiculous hotels in this regard. Anybody would think this company is a vanity project for a very rich man who throws other shareholders a few crumbs every 6 months, but only because he has to... or have I got something wrong?

All the best, Si

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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