Investors in Imagination Technologies are nervous. Not only is the company in the midst of a transition towards becoming a larger organization with a more diversified product portfolio, a difficult task in and of itself, it is also trading at near 30 times its profit. The latter means that there is little room for error as the outfit also attempts to simultaneously penetrate emerging markets, ramp up production volumes and increase its investment in research and development (R&D) personnel. In the end the question is how it manages the transition to a larger business with a wider range of products, or whether it goes the way of other small UK high-tech companies and is swallowed by a competitor. That prospect goes some way to justify the current multiple of 28 times this year's earnings. But it is unlikely to be a smooth ride. Hold, unless you fancy a punt on an eventual bid, says The Times' Tempus column (Last IC rating: Hold, 12 Dec).
On Wednesday shares in Ophir Energy fell despite a positive update on the situation of its Jodari prospect, off Tanzania, which it shares with BG Group. Not coincidentally, the price of the company's stock had just gotten back to levels last seen at the start of his year, before it carried out its latest round of capital raising. For Tempus that goes to show that what has been hanging over the shares has been how the company plans to pay for the next round of exploration, whether by selling assets or going back to the market. Neither were there any further news of the other field in deeper waters off Tanzania, or of the decision in the summer to find partners for two other African prospects. Until there is some movement on these, or on future financing, the shares will probably continue to tread water, Tempus believes (Last IC rating: Hold, 4 Sept).
Whitbread is benefiting from the woes of its rivals - and this should continue into next year, despite the challenging backdrop, as the company benefits from its "robust" business model. Nevertheless, it does need to execute on its expansion plans, both at home and abroad, without sacrificing the quality of its offering. With the above in mind, The Telegraph's Questor team says that it has not looked at Whitbread shares since September 2010, when a buy was recommended at £15.02. They have since performed very well. Expansion plans should continue to boost operating profit, which has risen by almost 70 per cent over the past five years. Trading on a 2013 earnings multiple of 16, falling to 15 next year and yielding a prospective 2.3 per cent, the valuation looks pretty full, the newspaper adds. Indeed, the average price target of the 16 City analysts monitored by Bloomberg is £23.63, some 5 per cent below the current price. Hold, Questor says (Last IC rating: Hold, 11 Dec).
Business press headlines:
The US Federal Reserve renewed its efforts to support the still weak American economy today, unveiling a fresh round of bond buying and, in a landmark move, tying critical interest rate decisions to the health of the jobs market.
The move came as Ben Bernanke, America's top monetary policymaker, lamented the "enormous waste human and economic potential" as the country struggles to get back on its feet following the Great Recession. He spoke after the Fed said it would only begin raising interest rates from near zero levels struck during the financial crisis when the jobless rate falls below 6.5 per cent. It also tied policy to concrete inflationary thresholds, setting a new, more transparent precedent for the way monetary policy decisions are made in the world's largest economy. [The Independent]
The International Energy Agency (IEA) has raised its estimates for oil demand next year but says soaring shale production in America should ensure there are no shortages in supply. Improving economic conditions in China and the US is likely to result in about 865,000 barrels of extra crude demand during 2013, to reach total consumption to 90.5m barrels a day, according to the IEA's latest oil report. That figure is more than 110,000 barrels more than estimated just four weeks ago even though the IEA believes demand will remain sluggish in the first half of the year. [The Guardian]
European finance ministers have agreed a deal to give the European Central Bank new powers to police eurozone banks, embarking on the first step in a new phase of closer integration to help underpin the euro. Following months of tortuous negotiations, finance ministers from the European Union's 27 countries agreed to hand the ECB the authority to directly supervise the eurozone's biggest banks and intervene in smaller banks at the first sign of trouble. [The Telegraph]
James Harding, Editor of The Times, resigned yesterday, saying it had become clear to him that News Corporation wanted to appoint a new editor. He announced to staff that he had telephoned Rupert Murdoch, chairman and chief executive of News Corporation, yesterday morning offering to resign, and that his offer was accepted. Mr Harding's departure comes at a key moment for the future of the newspaper industry, with negotiations at a critical stage over the implementation of Lord Justice Leveson's recommendations on press regulation. [The Times]
Facebook is expanding its efforts to introduce real-money gaming to millions of British users after announcing a deal with the online gambling company 888 Holdings. The American social network said that it had reached an agreement to introduce a range of bingo, casino and slot games on its website. British users of Facebook aged over 18 can bet up to £500 using their credit or debit card to win jackpots of tens of thousands of pounds. [The Times]
Two of Deutsche Bank's top executives have been drawn into a tax fraud inquiry by German prosecutors, casting further dark clouds over the country's largest bank. Police and investigators raided the bank's headquarters as part of a probe into tax evasion, money laundering and obstruction of justice involving carbon trading. Jürgen Fitschen, the bank's co-chief executive, and Stefan Krause, chief financial officer, are involved because they signed the bank's value-added tax statement in 2009, Deutsche said. [Financial Times]
Bank of England chief economist Spencer Dale yesterday warned that the UK faces a "long and painful" recovery as wages grow more slowly than prices, and admitted there is little the monetary policy committee (MPC) can do to help. A combination of rising raw material costs, a weak pound and higher university tuition fees and VAT has kept inflation above 2 per cent since December 2009 and it is expected to remain so until the second half of 2014. [The Scotsman]
