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Imagination Technologies climbs on talk of possible Pure radio sale

Discussion in 'Market News' started by Lily, Jan 25, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
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    Company is reviewing strategic options for digital radio business

    Imagination Technologies, the chip designer which is one of Apple’s suppliers, has confirmed reports it could sell its Pure digital radio business.

    The Sunday Times reported (£) that the company - which issued a profit warning in December which hit its share price hard - could sell Pure as well as its headquarters to strengthen its balance sheet.

    Pure’s prime focus is now the growing digital radio market and its financial performance is improving rapidly. The group is reviewing its strategic options for this business.

    The group recognises the challenges it is facing given the current economic backdrop of the industry in which it operates. The group is already and actively controlling the investments that it is making to minimise Opex growth. Imagination continues to monitor the industry situation and will take further actions as and when necessary.

    [This] suggests that the chairman is acting and is likely to be well received. Shutting Pure alone would lead to a 360%/46% increase in 2015 /2016 EBIT.

    The shares are trading at 2.3 times enterprise value/sales but at a two-year forward PE of 29 times, which is stretched for a company that is struggling to offer profitable growth in the current fiscal year. Our break-up valuation targets around 115p a share as fair value and yet this may not be fully reflecting the fast decline of non-Apple business and the struggles that Apple have in reinvigorating iPhone growth. This suggests to us that 100p (25 times PE or 1.8 times enterprise value/sales) may be a fairer level until visibility of sales growth returns. As a result, we retain Imagination Tech at a sell and target price of 100p.

    While Apple could afford such a deal, the debate may be that this is not necessarily a must-have (Apple can get a sufficient graphics processing unit from Arm).

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