Half-year results from set-top box maker Pace beat expectations hands down, yet the £272m (net of cash) acquisition of 2Wire announced alongside the figures is arguably the bigger news.
The deal is a coup, opening the door to US telecoms providers at a stroke and making Pace a true triple-play supplier. AT&T has been a 2Wire customer for 10 years, and it also supplies BT in the UK. Pace, the world’s number one digital set-top box maker, now has a top-tier telecoms customer base with home gateways expertise, giving access to multi-room HDTV (high definition television), fast broadband and base station connectivity. Last year 2Wire generated pre-tax profits of $28.9m (£18.4m) on sales of $667m.
First half figures for Pace smashed analyst forecasts with sales over 8 per cent higher than RBS had been expecting and adjusted pre-tax profits of £48.8m a hefty £7.5m above estimates. Consumers are increasingly switching to HD, helping push gross margins from 17.2 per cent a year ago to 18.6 per cent, while set-top box shipments are up 13 per cent to 9.6m units.
RBS has upped its 2010 and 2011 EPS forecast by 13 per cent to 22.1p and 24.2p, respectively, and expects the 2Wire acquisition to enhance next year's EPS by 6 per cent to 25.7p (2009: 19.3p).
PACE (PIC) | ||||
|---|---|---|---|---|
| ORD PRICE: | 214p | MARKET VALUE: | £651m | |
| TOUCH: | 213-215p | 12-MONTH HIGH: | 244p | 145p |
| DIVIDEND YIELD: | 0.8% | PE RATIO: | 10 | |
| NET ASSET VALUE*: | 78p | NET CASH: | £94.1m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 528 | 31.0 | 7.5 | 0.500 |
| 2010 | 635 | 45.4 | 10.7 | 0.725 |
| % change | +20 | +46 | +43 | +45 |
Ex-div:10 Nov Payment:10 Dec *Includes intangibles assets of £111m, or 36p per share | ||||
