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Zytronic – ‘pleased to report a doubling of the dividend’, so why a share price decline?

By Steve Moore | Tuesday 15 May 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Touch sensors manufacturer Zytronic (ZYT) “is pleased to report a doubling of the interim dividend to 7.6p (H1 2017: 3.8p) in line with our progressive dividend policy, and the continued development of our business into new markets”. Sounds promising – and the shares have currently responded… more than 8% lower, towards 400p. Ah…

The continued development of the business into new markets has been needed as “in the Financial sector, where we supply product for ATM manufacture, demand has been unpredictable with projects being deferred and sales lower”. Indeed, despite the stated continued development, revenue was 6% lower at £10.6 million and the outlook;

“The second half of the year has started with some improvement in demand from the ATM market and an increased number of projects in the growing Gaming sector. This is consistent with the improvement in trading normally experienced in the second half, and whilst growth may be suppressed compared with recent years, we expect to make good progress in developing our unique, award-winning products, particularly in the USA and Asia”.

The USA and Asia is also with change to direct sales representation, though the share price still compares to full-year earnings forecasts of 27.5p (H1: 11.7p).

The balance sheet remains strong – including cash (net) of £13.7 million (more than 85p per share), though I also note the statement includes the dividend move not only in line with a progressive dividend policy, but also “to facilitate a move towards an improved balance between the interim and final dividends for a fiscal year”. So not a doubled dividend really then. I currently continue to be cautious and to avoid here.

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