In some ways the disappearance of Imagination Technologies from the stock market, if it attracts a takeover offer, might be no bad thing. Investors will be well aware that this has been a horribly volatile stock. With more than half the chip designer’s revenues coming from Apple, it was also vulnerable to the periodic slowdowns in the mobile phone market, in the run-up to the launch of new models, for example. It also has never paid a dividend.
The shares were above £6 in 2012. They rose 13½p to 157p after some better-than-expected results yesterday. When, at the end of March, Apple indicated that it would no longer use Imagination’s processing technology, they were trading at almost £3. It was an especially harsh blow coming at the end of a restructuring programme to get the company back into reliable profit.
The fruits of this are on display in the figures to the end of April, but it is doubtful if Imagination can weather the loss of that Apple business without having to cut costs even beyond the £27.5 million a year achieved already. The company has sold the underperforming Pure radio operation and pulled out of other non-core businesses. The writedowns from these left a £29.4 million loss at the reported level in the previous financial year, turned around to a £2.4 million profit last time.
Adjusted operating profit on continuing operations almost trebled from £10.5 million to £29.2 million. The Apple bombshell prompted the board to announce the sale of two of its three main IP products, MIPS, which provides processing for devices other than mobile phones, and Ensigma, providing wireless connectivity. Imagination would henceforth concentrate on PowerVR, the IP that goes to Apple.
All that changed when the entire company was put up for sale last month. It is difficult to take a definitive view on the shares, though they probably sell on about 15 times earnings. There is the prospect of legal action against Apple, possibly instigated by any future owner.
There is no shortage of potential buyers that would be keen on that IP. Anyone not keen on risk could sell in the market and cut their losses. However, there could be some upside. Existing investors should hold; only real gamblers should consider buying.
MY ADVICE Hold
WHY Existing investors might as well stay in for any potential upside as a bid looks likely, but the stock remains highly speculative
Johnson Service Group
It seems Johnson Services does not share the problems that have affected Berendsen, its larger rival, which has succumbed to a takeover from Elis, of France, after a couple of profit warnings. These, to do with rising costs and technical difficulties with plant and machinery, are plainly company-specific. Johnson, which has suffered some turbulence in its share price as a consequence, was keen to say that, at the halfway stage, results for the full year probably would be ahead of expectations.
Johnson has spent £7 million on its factories in Southall, west London, and Chester ahead of the seasonally busy summer. There had been concern over the level of debt, but this, given its strong cash generation, is back below twice earnings, which gives scope for further acquisitions in a sector that is rapidly consolidating. Last year the company made three of them.
Meanwhile, Johnson is growing organically at about 5 per cent, half pricing and half volume gains, and this should continue, helped by the withdrawal of two of its rivals from lower-value work. The shares rose 2p to 131p and are now well up from about 85p a year ago. They sell on 16 times earnings and look fully valued.
MY ADVICE Avoid
WHY Much of the good news seems already in the price
Empiric Student Property
Empiric indicated in September that it intended to raise £150 million to £200 million a year from investors to fund plans to grow in its chosen market and beyond its core business of overseas and mature students offered somewhat more upmarket accommodation than their peers generally.
The company is looking at premium townhouses, at half a dozen university towns where it is not represented and at joint ventures with individual institutions. The first fundraising duly arrived yesterday, £150 million at 109p a share, a slight discount to the shares, which slipped ½p to 111p. Empiric has identified 3,500 beds available for purchase and is in talks to acquire more than 1,000 in London in five different properties for a total of £112 million.
At this rate, that £150 million will run out fairly soon. The company, though, has the option of raising fresh debt at the start of the academic year on the back of the new properties that will then come on stream, so the next effort to raise cash should not be until next year.
Empiric has tended to be less active than the rival Unite Group, but with the student population set to grow whatever the political outcome, the sector remains undersupplied. The attraction for investors, as with other specialist property companies, is the assured dividend income. Empiric announced a 1.525p quarterly payment yesterday and is on course to pay 6.1p for the year. This means the shares being issued offer a yield of 5.6 per cent, which is hard to argue with.
MY ADVICE Buy
WHY Expansion will support that attractive dividend yield
And finally . . .
When XLMedia came to the stock market in 2014, one of the intentions of this provider of digital marketing directing users to various platforms was to spread the business beyond gambling and gaming. It has released a string of positive trading updates since and the shares have risen from an issue price of 49p to 139½p last night. Gambling now accounts for 57 per cent of revenues, down from 70 per cent in the first half of last year, and XLMedia has expanded into areas such as credit card comparison and cybersecurity.
