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FTSE recovers 100 points but Apple suppliers Arm and Imagination slide

Discussion in 'Market News' started by Lily, Dec 15, 2015.

  1. Lily

    Lily Forum Member

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    Leading index bounces back from three year low as investors await Fed

    After hitting a three year low on Monday, leading UK shares have made an attempted bounce back.

    But some FTSE companies are missing out, notably chip designer Arm which is down 13p at £10.28 after German semiconductor group Dialog cut its sales forecasts. Meanwhile smaller rival Imagination Technologies is own nearly 6% at 154p after it warned on profits, citing a slowdown in semiconductor and smartphone markets.

    Dialog which is a key supplier to Apple has warned. Dialog now expects fourth quarter revenue of $395m, 11% below previous guidance of $445m. This is the first warning from the Apple supply chain. Volume growth from Apple has been the key driver of many tech stocks. This is now slowing.

    Interims are very weak, with disappointment in all revenue lines and control over opex base growth a damage limitation exercise. Unit volume declines are alarming, but especially for MIPS. While the figures are particularly poor, Imagination is no stranger to reporting disappointing numbers, having done so for several years. However, at around 2.7 times enterprise value/sales versus a long term trend of 5 times, we remain buyers, given that the steps needed to run this IP-rich business in a financially disciplined way appear obvious – and a catalyst for change is evident.

    In our view, the catalyst for change exists in the form of the new(ish) chairman, whose history suggests that the necessary changes will ultimately be made (Vestas Wind Systems).

    A reversal of fortunes with the drill-bit sees Tullow record encouraging initial results at the Etom-2 well in Block 13T in Kenya. Oil samples, sidewall cores and wire line logging all indicate the presence of high API oil in the best quality reservoir encountered in the South Lokichar Basin to date.

    [But] with lower prevailing oil prices expected to continue into 2016 and little room for operational error at TEN [in Ghana], we believe the company’s financial position could be under considerable strain without asset sales or an issue of equity. A risk not worth taking, in our view. Our valuation attributes a core value of 109p, and 68p of risked exploration upside. We therefore retain our sell recommendation and our target price of 176p.

    Talks with Schneider have been terminated as it became apparent that the uplift in shareholder value originally anticipated was unlikely to be realised. This is disappointing as we thought the initial deal terms were attractive and the strategic rational appeared sensible considering Aveva’s current position. In our view, yesterday’s closing price of 2166p implied a near 18 times PE, accounting for the proposed near 950p cash return. After the initial fall this morning, we expect the shares to be volatile, but further M&A possibilities could lend some support.

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