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Imagination shares rise as restructuring pays off

The microchip designer's share price surged after it swung to an underlying first-half profit
Imagination shares rise as restructuring pays off

Chuffed investors sent shares in Imagination Technologies (IMG) up almost a tenth after the microchip designer swung to a first-half adjusted operating profit of £2.9m, compared with a £5.5m loss in last year's first half. The graphics, processing and connectivity specialist benefited from patches of demand, product launches and £28m in annualised cost savings from restructuring.

IC TIP: Hold at 243p

Imagination licenses its blueprints to customers such as Apple (US:AAPL), then collects a royalty every time they ship a device powered by its chips. While headline licensing and royalty sales rose 7 per cent and 6 per cent, respectively, exclude the £9m boost from currency movements and broker Jefferies estimates they fell by about 5 per cent and 6 per cent each.

Licensing sales and shipments of PowerVR, the group's multimedia brand, fell sharply as deals slipped into the second half and Apple ordered fewer smartphones ahead of the iPhone 7's launch in September. More positively, processing arm MIPS secured design wins in the automotive, networking and set-top box markets. And a slew of licensing deals for the group's Ensigma connectivity technology more than doubled the segment's revenue.

Management is close to selling or shutting down two peripheral businesses and recently divested the Pure hardware division. Broker N+1 Singer expects adjusted pre-tax profits of £21.6m this financial year, giving EPS of 6.3p (from losses of £18.2m and 5.7p in FY2016).

 

IMAGINATION TECHNOLOGIES (IMG)

ORD PRICE:243pMARKET VALUE:£684m
TOUCH:242-243p12-MONTH HIGH:275pLOW: 101p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:47p*NET DEBT:31%

Half-yearto 31 OctTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015 (restated)60.8-5.8-7.7nil
201664.4-2.6-3.7nil
% change+6---

*Includes intangible assets of £89.5m, giving EPS of 32p a share