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I published an update on AIM-listed electronic displays designer and developer Densitron Technologies (LSE:DSN) last week – concluding that a low earnings multiple and its balance sheet backing were sufficient to make me believe the shares were worth sticking with. Since my original tip on t1ps.com, the site I founded and edited for 12 years before leaving in September to set up the Nifty Fifty, my followers are 21% ahead.
The company has today announced what it describes as a “significant move forward” in its long-term strategy to create intellectual property and provide additional services that enable it to meet a fuller range of product requirements. The following takes a look at the announcement…
To read my detailed piece of last week click HERE
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The news today is that the company has today launched an ‘optical bonding’ facility in Taiwan – with it emphasising, having carried out extensive research, that optical bonding (the process that allows displays to be bonded to touch screens and cover lenses) “is becoming an increasing requirement in the industrial marketplace that the group addresses”. The operation is being undertaken jointly with Forward Electronics Co. Ltd, with which Densitron has had a long business relationship with and which is part of the Taiwan stock exchange-listed conglomerate, Tatung. This will see a 346 square metre state of the art facility and operational staff provided – with Densitron personnel managing the facility.
As well as the potential additional sales benefit from the expansion of the product offering, the move sees Densitron offering a more value-adding service, which customers should resultantly have more difficulty replacing – it should thus increase customer ‘stickiness’ and Densitron’s pricing power.
No specific financial information was provided – though Densitron did note that it has taken “a significant level of orders” in advance of the opening of the facility. This thus looks a sensible move – with clear potential to increase future earnings but the joint undertaking of the venture and advance orders reducing cost and risk. Approaching the end of the company’s financial year, news flow from today’s development could spark interest in the shares as the company provides details of its 2012 performance in the new year.
At 8.125p the company is capitalised at £5.6 million. In 2011, the operating profit was £1.09 million and at its most recent balance sheet date (30th June 2012) the company had £1.80 million of cash (£0.19 million net), net current assets of £3.11 million and just £130,000 of non-current liabilities. Net tangible assets totalled £3.81 million.
As such there is still strong asset backing and the company appears to trade on a relatively low earnings multiple. At the very worst this is a hold. I shall seek a company meeting at which point I shall offer a more definitive view.
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Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings (except for that free share tip) follow him on twitter at @tomwinnifrith
