Zytronic Share Discussion Threads

[mr5k] 14/12/2021 18:22

Looks interesting, bones. Great to team up with a company like Pilkington that has a top brand and huge global reach.

[bones] 14/12/2021 07:40

Thanks Mr Spock!

Here’s the live link:



” Zytronic is pioneering a futuristic new gaming machine concept for casinos and bars, using invisibly powered ‘floating’ components in partnership with glass manufacturer Pilkington.

The revolutionary gaming concept, termed as ElectroglaZ, will power itself completely through contact with players. Zytronic is able to create the product through two layers of coated glass, which itself acts as the wire, and produces an effect whereby devices appear to float in front of the consumer in an optically transparent panel.

The product will feature an upright sheet of laminated glass, a 21.5” touchscreen for players to interact with, a phone charger powered by induction capabilities, a USB port for additional device connectivity and a branded LED display.

Pilkington is partnering with Zytronic to manufacture the glass itself, with its NSG TEC electronically conductive glass able to interact with the touchscreen software that sits behind. The technology is also used in other applications, from heated glass for commercial refrigeration, heat reflecting and other electro-optical products.

Dr Andrew Morrison, Technical Director at Zytronic, commented: “Gaming is among the world’s most rapidly evolving markets, where players and product developers alike are always looking to try out innovative and futuristic new technology. Using wireless power transfer, Zytronic are revolutionising the look and feel of traditional gaming machines to enhance the gaming experience.”

Aderlan Vitalino from NSG Group, which owns Pilkington, said: “Zytronic are taking advantage of the unique properties of NSG TEC™ to realise futuristic new entertainment concepts. The glass surface is highly durable and easy to wipe clean, making it ideal for high-touch surfaces such as those on gaming machines.”

The gaming concept recently received significant interest at the Global Gaming Expo in Las Vegas, where it was presented to slot machine product developers. “

[mr_spock] 14/12/2021 07:35

hxxps://www.gamblinginsider.com/news/14214/touchscreen-expert-zytronic-creates-futuristic-gaming-machine-concept

[bones] 08/12/2021 17:07

£18.9M market cap. Includes circa £10M cash today I would think. The enterprise value around £9M is really low given what’s been discussed here.

[she-ra] 08/12/2021 15:43

So the market values the business at £9.8 million. Is there a chance this profitable, cash rich and returned to growth company could be valued at zero?

I wonder if its larger US competitor Elo Touch is monitoring this?

[asagi] 08/12/2021 15:35

the presentation demonstrates the momentum. This is key takeaway for me, page 11:

"Dynamic CRM opportunities log

+ 30 September 2021, 391 opportunities, projected value £28m, 17 classified at
‘Project’; status, projected value £1.5m.

+ 30 November 2021, encouraging improvement, 420 opportunities, projected
value £31.4m, 23 classified at ‘Project’; status, projected value £3.5m"

so, the scale of sales projects has increased from £1.5m to £3.5m in just two months.

Asagi (long ZYT)

[bones] 08/12/2021 11:55

There is a superb presentation of the results and supporting sectoral data available at the company’s investor website:

[bones] 08/12/2021 09:58

Thanks kiwihope. It’s a good point which I think illiswilgig made as well.

[kiwihope] 08/12/2021 09:26

Thanks you guys for the financial analysis. I was going to do the same but you saved me the trouble. Much easier checking someone else's calculations than doing your own!

There's one other thing you haven't mentioned which makes the valuation even better in my book - enterprise value. If you assume 10p eps and net cash of about £10M that gives a P/E in enterprise terms at current valuation of 10. Any increase in eps from here will lower P/E further.

So the upside is the share price is probably undervaluing the company at the present time; any growth makes it look very undervalued. The downside is omicron may cause a problem in the gaming sector.

Considering all this I have topped up today.

[bones] 07/12/2021 18:01

Thanks illiswilgig. All is grist to the mill.

I think the market maker last night was naughty. Switched from 180 offer to 180 bid at a minute to close to “create” an up 7.5p scenario. Today now down 12.5p for a real 5p loss overall. I think that was deliberate to encourage selling this morning at the open! These things can be done on rarely traded stocks.

[illiswilgig] 07/12/2021 17:41

I see that Singer have a new note out on ZYT based upon todays results. Available on Research Tree - for anyone with a subscription (I don't have one). Very positive with a price target of 250p.

[illiswilgig] 07/12/2021 17:36

bones - thank you for posting your figures and thoughts. Most useful insight.

For what its worth I've also been trying to go through the figures. But I am very slow. It takes me a while to get a sense of things. I also forecast estimates based upon H1 and H2 and extract the historic H2 figures from the FY - my estimates track very closely with yours.

My estimates for the H2 (and the FY) were close for gross profit and margin and operating profit.

My estimate for eps was quite far off - I'd estimated 4.6p but it came in at 3p.

It's taken me a while to work out what happened there. But its quite simple. The first element is that the statutory eps uses the weighted number of shares in issue over the year - which has the effect of reducing eps by around 0.5p.

The second element is that according to the financial review they took a full tax charge in H2 rather than use up losses (on the basis that its more effective to use them when the tax rate increases to 25% in 2023) and carried them forwards leading to an overall tax charge of 47k for the year. Then somehow their 9.2m of cash failed to earn a penny of finance income at the same time. All of which depressed the profit from my estimate by around 110k and reduced statutory eps by another 1p, Hence 4.5p turns into 3p.

Whilst some of that is simply the way the numbers work, and it's certainly conservative accounting - it should have the effect of flattering comparative growth figures next year at the statutory eps level. So it's all good in my book.

I agree with your figure of 5.2p for the H2 eps - which gives me 10.4p for a constant run rate for FY22

FWIW I've estimated 15% revenue growth (on H2 21) for H1 FY22 and H2 20% (on H2 21) giving 16.2m revenue for FY22. I had been thinking that might be a little optimistic until I saw the 77% up on first two months comment that you refer to. I now think its a reasonable first stab. If order intake continues at this level then it could even prove to be conservative.

Assuming a small improvement in gross margin and that admin costs increase as signalled, and an 18% tax charge (increases to 25% in 2023) that gives me 14.5p eps for FY22 - putting it on:

12x earnings

at the current(ish) 175p shareprice.

But that does not account for the increasing cashpile nor the profitability hidden by the depreciation and amortisation charges.

20m market cap (at 175p) and a rough estimate of 2.8m cash added to the 9.2m during the current year (2.4m FY21) gives cash of 12m and EV of only 8m.

Adding back the depreciation and amortisation (about 1m) gives an EBITDA of around 3m making my current year forecast

EV/EBITDA = 2.7x

Looks to me as the market hasn't spotted that yet - but then again its not a done deal it needs the orders to keep rolling in and supply contraints and Covid restrictions not to worsen, so it's understandable. Especially as the management does not tend to high-light forecasts, but then I prefer underpromise and overdeliver. Just need to wait for the H1 trading statement in my view,

I've ended up much more positive than when I started reading the results and I'll look to add a few more if it continues to drift back downwards.

I've rambled on far too long - sorry for that. I'll get my coat........

cheers for now.

[asagi] 07/12/2021 17:35

ArthurLameStocks:
The increased margins are probably due to the huge number of staff they laid off at the beginning of the pandemic and the remaining ones being much busier in the second half.

that's been confirmed, ArthurLameStocks.

bones:
the comments today about the outlook are good, quoting a 77% increase in the order book for the two months to 30/11/21, against (I guess) the corresponding period last year.

that's confirmed, too. The first two months of the year to September 2022 were 77% ahead of the first two months of the FY to September 2021.

Regards,

Asagi (long ZYT)

[bones] 07/12/2021 14:08

Right, I have had a chance to look closer at these numbers.

Starting from a point that acknowledges that this business is climbing out of a deep trough caused by Covid and the global lockdowns, I give far greater weight to performance of the later times than the earlier ones.

One measure not expressly given in today’s release is the performance of H2/21 in absolute terms (ie, the second 6 months). They made some comparisons with H2 of 2020 which showed significant improvements in revenue from a low point but I wanted to understand what those actual H2/21 numbers were. So, I did the simple thing of looking at the interim results and deducting those from the full year numbers, to give the H2 P&L account. It’s a reasonable comparison because there are no exceptional costs in the financial year (those were all booked in FY2020).

As I said, we are climbing out of a deep hole so I want to see a steep ascent which will hopefully be followed by so-called “escape velocity” with the business building on momentum as it wins back old business and develops new ones. Therefore H2 results mean much more than H1 and also means more than the year as a whole.

H2 (the half year to 30/9/21), based on my simple subtraction of H1 from the FY shows:

Revenue £6,899,000
Cost of sales £4,656,000

GROSS PROFIT £2,243,000

indirect costs £1,476,000

PROFIT BEFORE TAX £767,000

Tax charges £177,000

PROFIT AFTER TAX £590,000


This tells me:

- Revenues increased 44% in 6 months
- Gross margins improved to 32.5% in H2 from 27.1% in H1, a rate of increase of 20%
- Indirect costs REDUCED by 9%

The combined effect was to creat a PROFIT BEFORE TAX IN SIX MONTHS of £767,000. After a 23% tax charge, this leaves net earnings of £590,000 for the second half.

Let us assume the second half simply repeats itself in the first half of the current year. That would give a hypothetical net earnings of £1,180,000 which equates to EPS of 10.3p or a PE ratio of around 17 at current price.

This assumes no growth from September 2021. However, the comments today about the outlook are good, quoting a 77% increase in the order book for the two months to 30/11/21, against (I guess) the corresponding period last year. The company acknowledges that cost of living increase will affect future salary costs and reopening of expos will increase travel costs. However, the expo costs are positive costs as they directly contribute to selling and earning profits.

So, anecdotally, this suggests to me a forward PE ratio of much less than 17. If growth continues at, say, 30%, that would be at an attractive PEG ratio.

Finally, the dividend. The declaration of 1.5p is a tentative resumption from the Covid related suspension. The year before that (FY2019), they declared a final dividend of 15.2p! Admittedly that was partially from reserves but it was their usual level of payout. This shows what could be if the company can regain its mojo.

They acknowledge the financial sector (ATM’s) is slowly dying but they have a number of exciting new technologies slated for official releases at expos in Q1/22. Apart from that, the Las Vegas dependent gaming sector seems to be roaring back and the vending business from Europe also recovering.

The company is never one for hyperbole in its reporting (a common thread in my investments = prudent management) so for them to say the outlook is “good” suits me fine.

I’m sure many of the sellers today have simply done the opposite of cherry picking and focussed on the elements of the balanced commentary that relate to the ongoing areas of difficulty, eg supply chain, financial sector decline, etc. I would guess none bothered to see what H2 did compared to H1?

I continue to hold.

[bones] 07/12/2021 08:39

This is a business that, before the pandemic hiatus, routinely made gross margins in the 30%-40% region so I don’t agree with that statement ALS.

[arthur_lame_stocks] 07/12/2021 08:18

The increased margins are probably due to the huge number of staff they laid off at the beginning of the pandemic and the remaining ones being much busier in the second half.

[dozey3] 07/12/2021 08:15

Agreed, but the substantial increase in margins could also be very significant going forward. Is it due to efficiency improvements? Or is it largely down to decreased travel and trade-show budgets? I like to think the former, in which case the future is much rosier once chip shortages and travel restrictions are in the past.

[bones] 07/12/2021 07:59

Final results out. Initial reading suggests the start to this new year to 30/9/22 has continued positively so that is the main aspect for me. Like so many, they are having to navigate the supply constraints. Hopefully, they will be able to get to trade shows more often this year.

Looks like their major new product launches are all happening in the first quarter of calendar year 2022 (Q2/22). That should create a new cycle of tech in touch sensors for Zytronic.

[trident5] 18/11/2021 08:23

MRF - you messed up your timing mate. It's doubled in 18 months.

[arthur_lame_stocks] 18/11/2021 02:20

Been on the sauce?

[bones] 17/11/2021 20:34

From last week:

[estienne] 16/11/2021 14:08

Maybe I should have sold at 200p but I'm continuing to hold. I think its a well run company with good products and it seems on the way back to profit.

[bones] 16/11/2021 13:58

Interesting to note that Shore Capital has appeared on my level 2 screen as a fourth market maker, joining Singer and the two retail MM’s, Peel and Winterflood.

This suggests an expectation of greater volumes or some other reason for Shore to get involved with Zytronic.

Maybe someone has an order in to accumulate?

[varies] 04/11/2021 13:07

Estienne
With hindsight we can all see that Questor was wrong to buy at 400p. If everyone else had been selling then, as you suggest, then the price would have been lower !
I sold part of my shareholding in May 2017 at 530p and was unwise enough to buy them back in Feb 2018 at 499p. Luckily I bought many more at about 130p about 12 months ago. Even so my overall paper profit is modest.
We may not see £5 again but this price did not look unreasonable in 2017.