Zytronic PLC

 Zytronic PLC

I haven't written about any stock ideas for a while so here's a new one I think could present an opportunity. Please note I am not qualified nor authorised to give advice so if I pique your interest please consider taking some professional advice before investing.

It's another microcap, this time a designer and manufacturer of touchscreen technology for various markets including casino gaming and cashpoints.

The company has been struggling for a few years recently, largely due to the closure of casinos in the Far East due to Covid and recently announced a strategic review.

The conclusion of this review was that the company should be sold or wound down.

Conclusion of Strategic Review - 07:00:07 14 Nov 2024 - ZYT News article | London Stock Exchange

Now, in my opinion the opportunity from this investment comes from the steep discount the shares trade at to the value of the fixed and liquid assets on their balance sheet.

For example the whole company can currently be purchased for less than £5.5m. That is the figure known as the market cap shown in the link below.

ZYTRONIC PLC ZYT Stock | London Stock Exchange

But therein lies the nub, when it last reported the company had cash of £3.3m and freehold property realistically valued at a further £3.7m as can be found under note 11. in the Annual Report for last year.

Zytronic PLC Annual Report and Financial Statements 2023

Taking into consideration all of the other assets and liabilities, stock, debtors and creditors, the company had net tangible assets of around £13m. This is well in excess of the current value of the whole company, around 2 1/2 times. It is unlikely in a solvent wind down an investor won't get back at least his/her money.

But there is also the possibility of an outright sale of the company as a going concern. A perfect suitor under this scenario is another larger British company called Nexteq PLC (NXQ) which operates in much the same sphere but in different geographical markets. For example Nexteq derive over half of their revenue from North America and Zytronic derive most of their revenue from the Far East. 

In theory Nexteq could buy Zytronic for £10m, gain all of their customers and turnover, but still effectively get this all for less than nothing as they would be acquiring at least this in quality assets. Nexteq is also awash with cash and on the acquisition trail, when they last reported they had $30m in net cash.

Trading Update and Appointment of CFO - 07:00:07 31 Oct 2024 - NXQ News article | London Stock Exchange

The only fly in the ointment to the takeover scenario that I know of is that Nexteq's entire board recently resigned after a profit warning and they may be in limbo at the moment until a new board are appointed. In a wind up scenario, however, I believe I am still likely to at least get my money back.

This one seems like as close to a one way bet to the upside as you're likely to find.

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Copyright ©️ Romford Rob Jackson 

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