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Pace stays on track

Pace posted strong profit growth as regulators continue to scrutinise its deal with Arris
July 29, 2015

Investors in Pace (PIC) may have dreaded these half-year results after US peer Arris - which has agreed to buy the set-top box maker - slashed sales and earnings guidance earlier this month. But Pace overcame regional weakness and a strong dollar to post an 11 per cent rise in adjusted cash profits to $118m (£75.7m).

IC TIP: Buy at 357p

Sales of set-top boxes and media servers slumped 16 per cent to $748m, reflecting economic weakness in Latin America and consolidation among pay-TV operators in Europe. Indeed, revenues in those regions fell 16 per cent and 14 per cent, respectively.

But strong demand for Pace's latest high-end routers drove turnover up 36 per cent in the gateways division, and network revenues rose by more than half as broadband companies raced to upgrade their networks to handle soaring video and data traffic. The shift in product mix, together with tight control of costs and the supply chain, widened Pace's adjusted operating margin by 1.6 points to 10.9 per cent.

Management expects the Arris deal to close by the year-end. It is confident that product launches and rising orders will fuel sales of up to $2.72bn for the year to December. Prior to these results, broker Numis forecast adjusted EPS of 60.2¢ for 2015 (from 63.6¢ in 2014).

PACE (PIC)
ORD PRICE:357pMARKET VALUE:£1.1bn
TOUCH:357.2-357.7p12-MONTH HIGH:477pLOW: 284p
DIVIDEND YIELD:0.9%PE RATIO:10
NET ASSET VALUE:232¢*NET DEBT:nil

Half-year to 30 JunTurnover ($bn)Pre-tax profit ($m)Earnings per share ( ¢)Dividend per share (¢)
20141.1472.017.82.25
20151.0885.127.1nil
% change-5+18+52-

*Includes intangible assets of $737m, or 230¢ a share £1=$1.56