Small Cap Value Report (Thu 2 May 2019) - BOTB, ZYT

Thursday, May 02 2019 by

Good morning, it's Paul here.


Trading update

(I have a long position in this share)

Best of the Best PLC, (LSE: BOTB) the organiser of weekly competitions to win dream cars and other luxury prizes, is pleased to announce the following trading update for the 12 months ended 30 April 2019 (the "Period").

Good news!

The Company's financial performance during the Period has continued to be strong, with the impact of the Company's online strategy and focused marketing efforts becoming increasingly evident.

As a result, the Board expects to report full year profit ahead of market expectations and revenue marginally ahead of market expectations.

This share is very illiquid, but it's a nice little company in my view.

The flow of divis, both normal, and special, have been excellent, in recent years.

Zytronic (LON:ZYT)

Share price: 262.5p (down 24.5% today, at 14:39)
No. shares: 16.0m
Market cap: £42.0m

Trading update (profit warning)

Zytronic is a UK manufacturer of bespoke touch-sensor screens.

Today it updates us on trading in H1 of FY 09/2019.

Revenue is down 10% & profit down 36% on last year's H1;

... interim results for the first half, which are due to be announced on 14 May 2019 and are expected to show revenues of £9.5m (2018 H1: £10.6m) and profit before tax of £1.4m (2018 H1: £2.2m)...

The last update was on 11 Dec 2018, which I reviewed here - being 09/2018 results, and associated trading update. Interestingly, I noted then the lumpy nature of orders, customer concentration, and the ever-present risk of a profit warning. Although the very strong, cash-rich balance sheet, and record of generous divis cushions that factor somewhat.

Performance has deteriorated since Dec 2018, when the company said that current trading was at "similar levels as last year" (Dec 2018), but is now well below last year (Mar 2019).

What's gone wrong? Order delays in the gaming sector;

Despite there still being an encouraging pipeline of opportunities in Gaming, the pace of conversion to orders in the year to date has been much slower than the Board had anticipated. 

H2 outlook - doesn't sound great to me;

Although trading in the second half of the financial year is usually stronger than the first…

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Best of the Best Plc runs car competitions. The Company displays luxury cars as competition prizes in rented retail space within airport terminals, at shopping centers and online. The Company is engaged in selling tickets to passing airport passengers, as well as from online customers through its Website. The Company operates from approximately eight United Kingdom and over two international airport sites, as well as approximately from three shopping centers. The Company operates from various airport sites located at Gatwick North, Gatwick South, Birmingham, Manchester Terminal 1, Edinburgh, Dublin's Terminal 2 and Westfield shopping center located in London's Shepherds Bush. The Company's Indian franchise trades under the BOTB brand from Hyderabad airport. The Company carries out its principal operations in the United Kingdom. The Company's subsidiary is Best of the Best ApS. more »

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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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  Is LON:BOTB fundamentally strong or weak? Find out More »

16 Comments on this Article show/hide all

runthejoules 2nd May 1 of 16

Who the heck are microsaic systems and why are they up 33%?

Good news from IQE (LON:IQE) - looks like a long awaited contract from a fruit company - but no names or numbers so U doubt it will go bananas... yet?

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Graham Ford 2nd May 2 of 16

My initial reading of the IQE (LON:IQE) announcement is that this qualification of the new production facilities will enable a number of key things to happen. First it means that they can produce their VCSEL wafers in mass quantities using 6” diameter and in long runs ensuring efficient manufacturing by using the highest diameter possible and no need to be changing the tool set up to switch tools between different products. Secondly, it ensures that tools in their other facilities are free to make other products such as wafers destined for the 5G wireless market that will probably start to show significant volumes by next year. Thirdly, there is the confirmation that qualification of VCSEL wafer production for other end users (such as Android phones) and other applications such as LiDAR is soon to be complete supporting the non-Apple related growth in VCSEL wafers.

Guidance is unchanged, which is probably a good thing rather than over promising given the historical volatility here. However, I think the announcement does support the guidance significantly and thus the likelihood of another earnings miss later this year is substantially minimised, which should help put a floor under the share price. There is still a significant amount of shorts outstanding. If this announcement triggers them to close then the price may still be rather volatile. But hey, this is IQE, so volatility is what we’ve come to expect.

I hold.

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MrContrarian 2nd May 3 of 16

My morning smallcap tweet: Goslow gaming kit hit for ZYT

Pennant International (LON:PEN), IQE (LON:IQE), Best Of The Best (LON:BOTB), Zytronic (LON:ZYT), McBride (LON:MCB)

Pennant (PEN) the previously expected contract for £25-30m delayed, poss to as late as H2 2020. Implementing cost-reduction exercise in response to this new timeframe for contract award. Guides no material impact on market expectations for the current year.
IQE (IQE) The new Mega Foundry has received its first mass production order from its leading existing VCSEL customer. "VCSEL product qualifications are at advanced stages with more than ten other customers, two of which are expected to reach a successful conclusion over the next few weeks."
Best Of The Best (BOTB) guides FY profit ahead of market expectations and rev marginally ahead of market expectations.
Zytronic (ZYT) H1 trading poor. Guides rev £9.5m (£10.6m) and pretax £1.4m (£2.2m). Blames gaming orders much lower than anticipated. Cautious on FY.
McBride (MCB) warns FY modestly lower than market expectations. CEO will leave after successor found. He is thanked.

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fanmail 2nd May 4 of 16

In reply to post #473316

Looks like the new chairman is ramping up the PR which was probably needed but for the moment it is still just that, PR.
One can be too cynical about these things however and I think the arrival of Philip Smith is a big step in the right direction.

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Gromley 2nd May 5 of 16

A mixed bag this morning from Reach (LON:RCH) I thought (I hold).

Anyone how has taken any interest in them, will be thoroughly unsurprised that : "The Board anticipates performance for the year to be in line with market expectations. "

The are fantastic at managing expectations, which tend to rise over the course of each year.


Reduction in net debt by £18m in 4 months is excellent, but expected.

On track with synergy savings of at least £20m pa by 2020, also good but expected.

However digital growth of 8.4% is very disappointing imho. This is lower than last years growth (which was said to be suppressed by Facebook & Google algo changes, which should now have dropped out of the compartives.)

My investment thesis here has always been that the legacy business will throw off much more value than the current Market Cap during it's "terminal decline" and that any value that emerges from the remaining digital business is something of a bonus, so perhaps I shouldn't be too concerned by this.

They say "There are a series of digital initiatives underway, which are expected to further accelerate this growth." One would hope so, their KPI for digital growth is 15% pa , so they are well short of that at this stage. From the AR, the expect digital growth to outstrip the decline legacy business "over time" - at this rate, that will be a very long time!

The share price is up slightly this morning and up c. 20% over the last few days, so perhaps 'the market' is taking a more positive view on this than me.

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Gromley 2nd May 6 of 16

It would also be interesting to get Paul's view on N Brown (LON:BWNG) results. They look surprisingly good to me, although I remain concerned about their management of what amounts to sub-prime credit.

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Trident 2nd May 7 of 16

I wonder if Paul took a personal position in Card Factory (LON:CARD) following his relative enthusiasm following their last announcement? I notice his Fantasy Fund contribution is considered non compliant nowadays due to its allocations, so don't know if its updated.

Is he rebalancing his portfolio somewhat to more income earning stocks from the more pronounced growth allocations he had before?

I have been in Card Factory (LON:CARD) for some time, and will see this out long term, barring disasters, in my ISA portfolio.

I am worried that my portfolio with the exception of a purchase of Terry Smith's core fund, which is quite diversified to non-UK stock, is too UK focused, but have tried to battle my demons in keeping this particular part of my portfolio focused on companies with dividends, relatively liquid, trading wise, and with healthy capital returns.

I excised IQE (LON:IQE) because I just started to lose faith in it as a perennial growth story, that never really delivered, and required constant capital infusions for production purposes, with no demand certainty.

No doubt it will be due a stellar re-rating!

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Math 2nd May 8 of 16

Hi Paul, when I read the statement this morning my first impression was that the operational gearing must have improved since going all online. For a 'slightly ahead' statement on revenue to generate an 'ahead' statement in profits has all the signs to me that this is the case. After years of steady growth I think they are possibly shaping up to become quite exciting again and profit on that operational gearing.

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LongValue 2nd May 9 of 16

Today's update from Zytronic (LON:ZYT) is clearly a profit warning. That said, it gives me no reason to sell the stock and so I will continue to hold. On the downside and something the company did not mention was its dependence on a relatively small customer base (As at the end of 2018, some 48% of its revenue came from just three customers). Moreover, it seems to depend upon projects outside of its control. Although it exports most of its output, it does not seem to benefit from a falling pound. Customers either want its product and are prepared to pay or they don't want it.

Incidentally, in today's economic environment it does reiterate the need to look closely at the balance sheet of any potential investment. Debt free and cash rich, it can still pay a dividend (Since 2014, it has paid out 78.23p in dividends per share) and bide its time. The same cannot be said of many other companies.

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doug2500 2nd May 10 of 16

In reply to post #473386

While I see much sense in what you write on Zytronic (LON:ZYT) and don't dispute it, especially the balance sheet, I took the opposite reaction this morning and sold out, except a small holding in my sipp.

I thought it was a significant miss in revenue and due to it's operational gearing and high margins (great on the way up, not so much on the way down) it had a massive effect on profit. It also looks like the first period for a while when they've used cash rather than produced it.

It was also the dreaded second half weighting, and having read the profit warning guide I mostly just sell out these days. I wouldn't rule out buying in again, and 260 looks a sustainable price to me, for now at least. Having said that lumpy orders and customer concentration mean that now I'm once bitten, I would be shy unless in bargain territory.

edited to add that I'm not that happy with management for releasing a stinker that wasn't (as far as I know) scheduled so I wasn't looking for it and couldn't react as quick as I'd like. It has the appearance of a regular update not an emergency so why could it not have been flagged up in advance so it would show in stocko's events or LSE's financial diary?

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MGinvestor 2nd May 11 of 16

In reply to post #473386

While I admire your determination, bear in mind that the house broker today has slashed their forecasts for Zytronic (LON:ZYT) for adj PBT by 33% for FY19 and by 28% for FY20. They also expect net cash to be reduced to £14.1 and £13.5 respectively. Unless you think that management will secure the additional contracts/revenues, I'd be careful.

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LongValue 2nd May 12 of 16

Very briefly, what I like about Zytronic (LON:ZYT) is that it's in a niche market; it's not at the commoditised end of its industry. It's well established. And, very importantly, it's debt free and cash rich. Should it need to, it can scale down its operations.

On the other hand, it seems to be too dependent on a small number of customers. It's badly impacted by the economic cycle and the demand for its production is driven by projects outside its control.

Put crudely, I think that in the medium term (Say within two years) demand for its output will return – a reversion to the mean. But for the time being, it will tick over. The update appears to indicate a fall in demand but no fundamental change in the market in which it operates.

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davidjhill 2nd May 13 of 16

In reply to post #473351

I thought Reach (LON:RCH) was exactly as expected. Debt down to £22m, EPS looks like circa 39p for the year. Revenue declines slowing down a little. More cost synergies to come. I agree that this business should throw off a huge amount more cash than market cap implies. The pension scheme is always thrown out as the big factor but even this looks more than manageable given life expectancy adjustments. Brokers seem to think it is worth upto 200p for whatever that is worth. I certainly hold here and see good value through to 160p myself or around 4* earnings. Market remains unconvinced but seems to be starting to appreciate they have over-estimated decline. Great dividend whilst you wait so happy to hold for next 3-5 years as necessary to achieve value.

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Wimbledonsprinter 2nd May 14 of 16

In reply to post #473416

I think for Zytronic (LON:ZYT) it is difficult to say what is systemic to the market and what is company/ customer specific. This trading update says the decline is in gaming, while other sectors are holding up - last year it was the reverse. The high customer concentration (you mention in your earlier post) means that it is likely that these moves are being driven by one or two customer decisions, which makes it very difficult to estimate what will happen in the future (for good or bad). But the trading statement (and the broker note) shows management has no clear indication that the trend will turn in the immediate future.

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fazm 2nd May 15 of 16

hi I read these reports in arrears usually no more then a week and love them a lot so sorry about this but

with regards to Elviron's comments regarding on the 25th

i accidentally read the comments for the first time in a long while. No one standing up so i will. he did nothing wrong (and the tone? its a message board where tones can go awry)
It looks like the article writers may have unwittingly got themselves a little totalitarian army :-)..

To be clear I love the daily missives from Paul and Graham, dont care how they do them as they likely know best for RNS scanning skills. Its also one of the best PI initiatives in the UK ever? (ie. not a con)

I only subscribe to stockopedia simply to support the endeavours, in a kind of pay it forward manor that eventually UK investors will get access to good APIs and data.

Go Elviron! (I wont look at the comments just to avoid me making these silly posts too )

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Trident 2nd May 16 of 16

In reply to post #473361

and sure enough IQE (LON:IQE) shoots skywards!

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 Are LON:BOTB's fundamentals sound as an investment? Find out More »

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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