After a March trading update described licensing activity as a "little muted", investors in Imagination Technologies (IMG) may be breathing a sigh of relief. The group, which licenses out microchip designs to the likes of Apple and Samsung and collects a fee for every chip used in a device its customers ship, is beginning to see the rewards from a period of hefty investment.
Imagination has developed a range of multimedia, processing and connectivity technologies, and is a key beneficiary of soaring demand for the chips that power and connect smartphones, wearables and 'smart' TVs. True, operating profits - even excluding £32m in one-off costs - fell 12 per cent to £21m. But the group inked 121 licences with customers such as Intel, Pioneer and Fujitsu, which should flow through into royalties in time. Moreover, overall chip shipments rose 5 per cent to 1.33bn units, yet the average royalty rate - excluding the MIPS processor business - still increased. That reflects the group's success in catering to low-end applications without undermining its premium offerings.
Completion of a multi-year investment programme meant underlying operating costs rose 9 per cent, less than half the growth rate of recent years. And management expect product launches and a narrower focus at Pure - the ailing wireless speakers and digital radio division - to drive top-line growth there this financial year. Brokerage Jefferies forecasts EPS of 7.7p for the year to April 2016 (FY 2015: 6.0p).
| IMAGINATION TECHNOLOGIES (IMG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 220p | MARKET VALUE: | £598m | |
| TOUCH: | 220-221p | 12-MONTH HIGH: | 267p | LOW: 167p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 76p* | NET DEBT: | 13% | |
| Year to 30 Apr | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 98 | 16.4 | 7.7 | nil |
| 2012 | 127 | 28.5 | 8.0 | nil |
| 2013 | 151 | 12.2 | 2.4 | nil |
| 2014 | 171 | -0.3 | 0.3 | nil |
| 2015 | 177 | -12.0 | -4.9 | nil |
| % change | +4 | - | - | - |
*Includes intangible assets of £109m, or 40p a share | ||||
