ZTEST Electronics Inc. (CSE: ZTE / OTCID: ZTSTF) Hitting the Reset Button
Cash rich manufacturer under new management
Disclosure: We own this one.
How do you turn around a company? Gradually, then suddenly. Turnarounds are one of our favourite hunting grounds. Today’s turnaround is ZTEST Electronics, a small Ontario contract electronics manufacturer specializing in low and medium-volume printed circuit board assembly. It languished for years, only to suddenly become profitable, and now has a new Board and management ready to deploy a pile of cash.
When we looked at what was happening with the numbers, we thought… isn’t this interesting?
Disclaimer - The content contained in this blog represents the opinions of contributors. You should assume contributors have positions in the securities discussed, whether long, short, or somewhere in between, and that this creates an obvious bias and conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance whatsoever and are subject to certain risks, uncertain risks, and other factors. Information might also be completely out of date and may or may not be updated. In addition, no one guarantees the accuracy of any information provided and none of the information should be construed as investment advice or any other kind of advice under any circumstance, and the blog is a blog and not a registered investment advisor or broker in any jurisdiction. Frankly, no information here should be used for any purpose, except for entertainment (and we hope you enjoy).
Permatech – The Real Business
ZTEST is effectively the public holding company for its subsidiary operating business, Permatech, which manufactures printed circuit boards. The acquisition of Permatech by ZTEST was through a multi-stage acquisition in the early 2000s. Note that ZTEST had an incubator-like strategy in the early 2000s that was making “development-stage” investments, but Permatech is the only one left standing.
We think this story rhymes with Solitron Devices, our all time favourite turnaround story ever. See our original overview https://www.canadianvalueinvestors.com/p/solitron-devices-inc-otcpksodi-reading and full archives https://www.canadianvalueinvestors.com/t/sodi
Solitron has a better moat (producing power control modules for U.S. weapons systems), but they had serious underlying issues with quality control caused by previous management that have now been successfully fixed by current management (we are still long). In contrast, Permatech already went through a leadership and strategy change several years ago and is performing well; the issue was instead at the parent level.
https://www.permatechelectronics.com/
The Permatech Backstory
Performance improvement at Permatech appears to be aligned with management changes in that business unit, albeit the business is also benefiting from the macro environment and we would not want to fully discount previous management.
Revenue increased from $4.4MM in FY2022 to $9.8MM in FY2024. Some of that was pandemic-backlog conversion and therefore cyclical (revenue declined ~15% in FY2025, but gross margin remained stable at ~40%). YTD 9 month revenue was $6.7MM vs $6.2MM last year.
Their strategy of focusing on customers needing lower volume, higher quality boards, is benefiting from the reshoring of industries push in North America for example. We do not think the AI boom is hurting either. We do not view this as an AI play, but it is likely benefiting on the power-side.
The Retirement of John Perreault and the Appointment of Suren Jeyanayagam as President of Permatech (ZTEST ELECTRONICS INC)
ZTEST Electronics Inc. (”ZTEST” or the “Company”) is pleased to announce that Suren Jeyanayagam has been appointed President of the Company’s wholly-owned operating subsidiary, Permatech Electronics Corp. (”Permatech”), on the retirement of John Perreault as President. Suren has worked for Permatech for 25 years and served as Vice President Manufacturing since December 2020.
The Board of Directors wish to thank Mr. Perreault for his more than 30 years of service to Permatech and wish him the best in his retirement. The Board welcomes Mr. Jeyanayagam to the role of President of Permatech. Steve Smith, President and CEO of the Company stated “We will miss John and wish him well but Permatech is in good hands with Suren. John has been training Suren for the role of President and Suren’s extensive experience with Permatech will allow for a seamless transition”.
What would you say you do here? Resetting capital allocation
