Join our community of smart investors

Fever dream for Imagination

The microchip designer suffered from sluggish trading in smartphone and semiconductor markets
December 18, 2015

Companies focused on long-term success often frustrate investors with years of losses. That remains the case at Imagination Technologies (IMG), which licenses out microchip designs to the likes of Apple and Qualcomm and collects royalties for every device they ship that contains its technology. Its shares slid 11 per cent after it posted an adjusted operating loss of £7.3m for the six months to 31 October.

IC TIP: Hold at 155p

Weaker demand in smartphone and semiconductor markets translated into lower sales across Imagination's divisions and regions. Indeed, licensing sales tumbled 21 per cent to £12.6m, while royalty revenue fell 12 per cent as chip shipments fell sharply. Rounding out the bad news was Pure, the consumer electronics business, which posted an operating loss for the eighth consecutive year. Imagination's management responded by cutting back on spending: it now expects underlying operating costs to rise 2 per cent this financial year, down from previous guidance of 5 to 10 per cent.

On the bright side, management inked 42 licences including a landmark deal for PowerVR graphics processors that should generate hundreds of millions of unit shipments after a couple of years. It also won design work in the mobile, TV and automotive markets, which helped to boost the order backlog by more than a half compared with the previous year.

Broker N+1 Singer expects to slash its forecasts. It previously expected EPS of 4.9p in the year to April (6p in FY2015).

 

IMAGINATION TECHNOLOGIES (IMG)
ORD PRICE:155pMARKET VALUE:£424m
TOUCH:154.5-155p12-MONTH HIGH:267pLOW: 142p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:70p*NET DEBT:18%

Half-year to 31 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201482.2-10.7-3.9nil
201571.1-22.7-7.7nil
% change-13---

*Includes intangible assets of £106m, or 39p a share