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Not just my Imagination: Chipmaker's results could provide fuel for bid talks by showing life after Apple

Published: 08:49 04 Jul 2017 EDT

Chips
Liberum Capital analysts said: “With much of the strength coming from customers other than Apple, it is also likely to push up the valuations of the company within the sale process”

Full-year results today from Imagination Technologies PLC’s (LON:IMG)  looked to have been largely overtaken by events, with the City focused on and possible takeover discussions  and the chip maker’s royalties dispute with Apple Inc (NASDAQ:AAPL).

But in actual fact the numbers provided some relief, with the small cap firm seeing a return to profit of £2.37mln before tax for the year ended April 30 2017, against a £29.397mln loss a year earlier when the firm had taken a big restructuring hit.

READ: Imagination Technologies returns to profit as sale talks continue, but no progress in dispute with Apple

The turnaround came as revenues jumped by 19% to £145.2mln mainly thanks to strength from Imagination’s licensing revenues which leapt by 82% year-on-year.

The company is continuing to see good demand for all of its three businesses - Ensigma licensing revenue was up 200%, PowerVR was up 43% and MIPS was up 12%.

The good news from the results is the continuing demand for the firm 's products, even after the loss of tech giant Apple as a customer, is likely to provide greater confidence to potential bidders for Imagination, according to broker Liberum Capital.

In a note to clients, Liberum’s analysts said: “With much of the strength coming from customers other than Apple, it is also likely to push up the valuations of the company within the sale process.”

They added: “We expect the sale price to range between a low end of 153p and a high end of 233p, with our price target of 193p based on the average of this range.”

The analysts expect a number of companies to be interested in the business including Intel Corp (NASDAQ:INTC), Mediatek, Spreadtrum/Tsinghua, JAC capital, CEVA, Synopsis, Samsung and Qualcomm.

But still no fresh news on bid talks

However, broker N+1 Singer pointed out that although Imagination’s results were slightly ahead of their expectations, there is no further update on the key dispute with Apple, and no indication of the level at which the group has received interest from potential bidders.

The N+1 Singer analysts said: "The outlook for licence revenue in FY’18 is said to be strong, but we expect potential customers to (be) wary in light of the uncertain outlook for the group.”

They added: “We continue to believe that the PowerVR IP [Intellectual property] will be attractive to a number of potential bidders, but as a primarily IP based sale, it is very difficult to quantify the value.”

They concluded: ”We would expect a potential offer to be broadly in the 100p – 150p range.”

In early afternoon trading, Imagination shares were trading above that top of the range at 154.75p, up 7.8%, or 11.25p on yesterday’s close.

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