These small caps have dived following today’s updates. Is this a prime buying opportunity?

Royston Wild considers whether now is the time to buy these two small cap shifters.

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Investor enthusiasm for Pressure Technologies (LSE: PRES) has dripped lower in Tuesday business following the release of full-year trading results. The stock was last dealing 7% lower on the day.

Pressure Technologies — which designs and manufactures high-pressure systems — advised that revenues had slumped 34% during the 12 months to September 2016, to £35.8m. As a result the engineer swung to a pre-tax loss of £359,000 from a profit of £1.1m in the prior year period.

And Pressure Technologies remains cautious looking ahead as the oil and gas sector could remain under the cosh despite last week’s OPEC accord. The business cited possible compliance issues from the cartel’s participants that could affect total output, as well as the impact of the deal in encouraging US producers to get back to work, a move that could hamper any oil price advances.

Pressure Technologies therefore elected to axe the dividend for fiscal 2016. And the firm is right to be conservative in my opinion. While it has ploughed huge time and money into its Manufacturing Divisions and Alternative Energy operations to diversify away from the oil sector, the engineering giant still sources more than four-tenths of total sales from crude drillers.

The City expects Pressure Technologies to snap back into the black with earnings of 8.8p per share in the period to September 2017. However, I believe these projections could significantly underwhelm and reckon a forward P/E ratio of 16.7 times fails to reflect this.

I believe investors should give Pressure Technologies short shrift at the present time.


Shares in touchscreen builder Zytronic (LSE: ZYT) were also under pressure on Tuesday after a lukewarm response to its preliminaries. The stock was last dealing 5% lower from Monday’s close, taking it away from recent seven-month peaks of 405p per share.

Zytronic advised that group revenues edged down to £21.1m during the 12 months to September 2016, falling from £21.3m in the 2015 fiscal period. And this prompted profit before tax to dip 4% to £4.3m.

However, Zytronic’s bottom-line weakness was prompted by a £900,000 hit caused by fair value movements on foreign exchange forward contracts.

Indeed, the screen star struck a somewhat upbeat tone looking ahead, advising that “the year has started well with orders, revenue and current trading ahead of the same period last year.” Zytronic advised that its strategy of targeting the larger-format touch sensor markets, like those used in the gaming industry, is paying off handsomely and sales of its touch sensor products grew 5% last year.

And the Newcastle firm’s confidence in its long-term outlook was underlined by its decision to turbocharge the full-year dividend — a total reward of 14.41p per share for fiscal 2016 is up 20% from 12.01p for the previous year.

The City certainly retains a bullish outlook for Zytronic, even if earnings growth is expected to slow from an 8% rise last year to a marginal increase in the period to September 2017. I reckon a P/E ratio of 14.4 times is attractive value as demand for Zytronic’s new suite of products takes off.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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