It has been a while since I bought anything new to add to my portfolio, but recently I did decide to buy shares in a company called Densitron.
The company describe themselves as a world leading designer and manufacturer of information display systems.
I am hopeful that I have identified a pricing anomaly with this company whose current market capitalization is about £7.5m (share price currently 10.75p).
On first examination the company may not appear to be much of a bargain, the share price graph shows a sudden and severe dip from 15p to its current level, and underlying earnings were 0.72p, putting the shares on a p/e ratio of 15.
However, when you dig deeper you can see that this is a company that grew revenues by 37% from £15.1m to £20.8m last year, with underlying profits increasing from £200,000 to £700,000
The sharp fall in the graph is entirely due to a 5p special dividend payout which was distributed to shareholders following an asset sale.
What really attracts me to this particular company is their bullish outlook for the next two/three years, the restoration of a dividend payment and the future earnings projections.
From the 2010 full year report:-
“Jan G Holmstrom, Chairman of Densitron, commented:
"I am delighted with the progress that the business has made during the year. The work that has been done to develop new products and markets has put the Group in a position to be able to grow substantially over the next few years and this is demonstrated by the continuing growth in the order book that has been achieved during the first quarter of 2011. "”
The group intends to pay a dividend in July of 0.2p following an interim payment of 0.1p. The total 0.3p dividend for the full year is just under 3%.
Most encouraging are the projections going forward. Broker EPS estimates come in at around 1.49p for 2011, and 2.17p for 2012. This gives forward P/E ratios of 7 and 5 respectively. Given the expected growth and current indications from the company then the share price looks far too low.
Having run through some projected figures myself for 2011 and 2012, I think the broker forecasts may even underestimate potential earnings. I would be disappointed if the share price isn’t somewhere between 30p-50p over the next couple of years (e.g. 2.17p multiplied by 15 gives a share price of 32.5p).
Meanwhile I’ll sit tight and gladly accept the dividend payments which I anticipate will increase with earnings.
P.S. Worth noting that the Chief Exec bought about £20,000 worth of stock around the 9p mark in recent months.
P.P.S. Share price moved up a further 7% today.
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