Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

ZYTRONIC - a really poor trading statement but I don’t think I’m ready to abandon ship yet

Zytronic, the touch screen specialists came out with a poor trading update yesterday.

I’m really not sure about this one now. The growth potential is clearly there (it has to be with the sort of multiples we are talking about), the production in place to support it and a good management team to oversee things. However there is greater pressure on their Zypos product to really fly in quick time and if sales of this slip the shares will receive another even bigger hit. Furthermore, with ‘real’ sales lead times of only 6-8 weeks there is little real visibility. The group is cash generative at the operating level but the cash is now being used to support the investment required to expand the production facilities. The yield is an encouraging (but hardly earth shattering) 1.7%.

There are many more interesting high growth stories out there at the moment with significantly more compelling valuation metrics. Zytronic isn’t the sort of business that’s ever likely to come out with earth shatteringly positive announcements confirming massive orders. You have to wait for the results statement and odd trading update. Since announcing preliminary results on 13th Dec 2006 we have had an AGM statement on 27th Feb which gave no trading news, an announcement of interims on 15th May 2007 and now a trading update on 7th August.

I wouldn’t be a buyer at the moment but have always liked this company, its products and most importantly in this case the management, so I’m not abandoning it now - I know that’s about as helpful as the trading statement itself and a little soft but what can I say!


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