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Densitron Technologies (LSE:DSN), the AIM-listed electronic displays company has served up a rather nasty profits warning, leaving the shares trading at 7.625p valuing the company at just £5.3 million. I recommended this stock on t1ps.com, the site I founded and edited for 12 years until this September delivering an average gain of 42.7% over 241 share tips before leaving to set up The Nifty Fifty. The t1ps share tip was at 11.75p in December 2010 since when 6p has been paid out in dividends (including one special 5p payment) so as disasters go this was no total disaster. But the speed of the backtrack at Densitron is not pleasing.
The company announced on 5th November 2012 that “it expects its results for the year to 31 December 2012 to be behind market expectations. It does, however, expect that the operating profit for the year will be ahead of that achieved in 2011”. That prompted this article from me
However, the company has now warned that, as a result of some expected orders being delayed into 2013, “the company’s operating profit for the 2012 financial year will be materially below that achieved in 2011”. That turnaround can only be described as piss poor.
The company noted the update “reflects how cautious the market remains, with customers not wishing to overcommit. However, orders booked in the year were ahead of those booked in 2011, which, together with the introduction of new services and products, gives us confidence for 2013… It should be underlined that the group’s balance sheet remains strong and that the only bank debt within the group is to support working capital”. Additionally, the company added that agreement to a mediation process in respect of proceedings against it regarding the lease of a property located at Wallsend, Tyne and Wear, has been unable to be reached, with it continuing to try to reach a negotiated settlement.
The 2011 operating profit was £1.09 million and at its most recently published (30th June 2012) balance sheet date the company had £0.19 million of net cash, £3.11 million in net current assets and £3.81 million in net tangible assets. If this is simply a delay in orders then while 2012 numbers will be bad 2013 should be at least as good as 2011 which suggests that the current valuation is undemanding.
But the failure to deliver on expectations of just a few months ago and the comment on how cautious the market remains suggests little store at this stage should be put in the company’s “confidence for 2013”. The foundations should be in place for a material share price recovery on the company turning its trading around and this means I will continue to monitor developments here. However, with trading clearly currently tough, I can think of much more attractive investment propositions in the microcap tech related space.
I apologise for this but would sell Densitron even at the current price and switch into a company such as this one – small but growing and delivering
Tom Winnifrith is half of the team behind t1ps.com during the 12 years when it delivered such stellar gains on its share t1ps. The other half is Steve Moore who quit t1ps on a matter of principle in October 2012. The two men are now replicating the t1ps success with a new product The Nifty Fifty, details of which you can find here
