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Imagination announced its acquisition by Canyon Bridge, for a price of £550m and corresponding to a 42% premium compared to the last closing.
Imagination Technologies Group
Imagination reported its full results for the year ending April 2017, after the update in May. Revenues from continuing operations came in at £145.2m, corresponding to 21% growth yoy. By segment, PowerVR came in at £94.8m (+7.9%), MIPS at £35.4m (+18.2%) and Ensigma at £7.7m (+117.2%). By type of revenues, licensing came in at £33.8m (+81.8%) and royalties at £111.1m (+8.2%). The gross margin reached 97.1%, for an EBIT of £7.8m, corresponding to a margin of 5.4%. PowerVR was the only profitable business (£32.5m), while MIPS and Ensigma respectively lost £8m and £9.1m. The net result came in at -£27.9m, of which -£16.1m from discontinuing operations. Management confirmed that it had entered into a legal dispute over Apple parting way by 2019, wih options being reviewed. The company being officially and wholly for sale has also been confirmed, as well as the sale of the IMGworks and FlowRadio businesses, and the discontinuation of IMGSystems. The company expects good demand for licensing revenue in FY18, (although the sale process may cause uncertainty), as well as for royalties, benefiting from recent design wins. Apple should also fully contribute for the year to come.
Imagination has released its final results for the year to April 2017. While the results themselves are slightly ahead of our expectations, reflecting the significant restructuring undertaken in the year, events post the year end have taken over. There is no further update on the dispute with Apple within today’s update and no indication of the level at which the group has received interest from potential bidders for the whole group. The outlook for licence revenue in FY’18 is said to be strong, but we expect potential customers to wary in light of the uncertain outlook for the group. We continue to believe that the PowerVR IP will be attractive to a number of potential bidders, but as a primarily IP based sale, it is very difficult to quantify the value. We would expect a potential offer to be broadly in the 100p – 150p range. The stock remains firmly in special situation territory, but given the likelihood of an offer emerging, stay at Hold.
Imagination has announced the commencement of the formal sale process for the whole group. Having announced in May the intention to sell the MIPS and Ensigma businesses, it has now announced that preliminary discussions are engaged with several potential bidders. The company also said that it was still in dispute with Apple.
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Imagination’s interim results this week were reassuring. Underlying performance was in line and boosted by FX, leaving the group well placed for the full year. Total partner unit shipments were ahead of our expectations, offsetting some weakness in Licencing revenue. Net debt at £40.8m is well within covenants, alleviating any lingering concerns over the balance sheet. We are making material upgrades to our forecasts which are largely FX driven. With the restructuring now largely complete, and £27.5m cost savings achieved, we continue to believe that the strategy put in place by the new management team will deliver returns for shareholders. Our DCF derived target price increases to 290p (from 271p) and we stay at Buy.
Imagination reported its H1 17 results, ending in October. On a continuing operation basis, revenues came in at £64.4m (+8.8% sequentially, +3.3% yoy). PowerVR witnessed a decrease (£43.3m, -2% yoy) while MIPS (£16.7m, +13.3% yoy) and Ensigma (£4.4m, +146.7% yoy) benefited from strong growth rates. The number of devices shipped remained stable at 584m units; total royalty revenues went up by 5.9% to £52.5m, thanks to the great performance in MIPS, for which royalty revenues went up by about 20% with a 10% increase in shipments. The company reported a return to profitability, with a continuing operations’ EBIT of £2.9m, corresponding to a 4.4% operating margin, while the loss was £5.5m in the corresponding half last year. However, the company remains with a net loss of £4.6m for continuing operations, and £10.1m in total. The restructuring process is progressing well, with £27.5m of cost savings. The sale of the Pure business is now effective, as well as most of IMGsystems, while IMGworks (£2.5m of revenues, for a net loss of £3.4m) is expected to soon be disposed of. The company also announced the nomination of Peter Hill as a non-executive chairman on 1 February 2017.
Imagination has reported its interim results for the 6 months to October 2016. Group revenue from continuing operations of £64.4m (+6% y-o-y) is ahead of our expectations (N+1Se: £59.7m), with solid underlying performance boosted by FX gains. Good underlying unit shipments resulted in royalty revenues of £52.5m with licencing revenue of £11.8m broadly in-line despite some PowerVR deals moving to H2. The £27.5m of annualised cost savings have been delivered, resulting in adjusted EBIT up 65% to £12.2m. The group is seeing good demand for licences in all three of its core businesses, and with recent product launches going well, we expect unit shipments to grow. We continue to believe that the strategy put in place by the new management team will allow investors to focus on the group’s key strengths, and we maintain our belief that Imagination is a likely bid target. We retain our 271p target price. Buy.
Imagination reported FY 2016 (for the company, which we choose to rename in FY 2015 as most of the revenues occurred in that year) results, following a trading update in May in which the company had announced that the results would be below market expectations.
Imagination’s FY’16 results on Tuesday highlighted both the challenging trading conditions experienced during the year and the sweeping changes made by the newly installed management team. The poor FY’16 results were largely flagged in May and the group is in a very different shape going forwards. Management has outlined a pragmatic new strategy which focuses on the group’s strengths and ensures that future investment is focused in the areas of highest return. We have no concerns over the group’s balance sheet and make only minor changes to our underlying forecasts. Our DCF derived target price nudges up to 211p (from 207p) and we retain our Buy recommendation.
EARTHPORT PLC (EPO LN) Launch of EarthportFX | IMAGINATION TECHNOLOGIES GROUP (IMG LN) Turnaround continues | PREMIER TECHNICAL SERVICES GRP LTD (PTSG LN) Acquisition of UK Dry Risers Ltd and UK Dry Risers Maintenance Ltd | MJ Gleeson (GLE LN) FY’16 to be at the top end of expectations; FY’17 is business as usual
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Imagination’s FY’16 trading update shows underlying performance broadly in-line, with royalty revenue slightly ahead and licencing revenue behind expectations. The comprehensive restructuring work continues, which will result in a number of significant one-off non-cash charges. These will impact the P&L in FY’16 but good cash performance means year-end net debt came in ahead of expectations at £33.0m (N+1Se: £40.5m). The forecast £27.5m of cost savings are expected to be realised in full in FY’17 and we do not expect to make any major changes to our FY’17 forecasts. The planned sale of Pure is progressing and it is hoped will be completed in this calendar year. Separately the group has announced that interim CEO Andrew Heath has been appointed as CEO on a full time basis. We continue to believe that IMG’s core IP families are highly relevant and attractive and see significant value to a potential acquirer. Buy.
Imagination Technologies is a British silicon IP (Intellectual Property) designer, specialised in graphic and general purpose chips used in mobile and low-power devices, with a current market cap of £0.5bn. Imagination addresses chip makers by selling them blueprints such as IP blocks, cores or chip layouts; these blueprints, which can correspond to a specific functionality or to a whole system, will then be used by the customers to be integrated in a design which will lead to a functional System on a Chip (SoC). As a consequence, Imagination does not provide a physical finalised product to its customers but a design which will require additional work before manufacturing. The company’s streams of revenues come from two sources: licence fees, which are paid at the acquisition of the blueprint, and royalties, which are taken on every chip sold by the customer.
Imagination announced a further £12.5m of cost savings yesterday. This is on top of the £15m of savings announced in February. Importantly the three core businesses, PowerVR, MIPS and Ensigma, will be unaffected by the cuts, with investment in PowerVR actually increasing. We previously outlined a scenario involving £8.5m of additional cost savings, which resulted in us increasing our TP to 191p. Yesterday’s announcement went further, driving larger upgrades than we had anticipated. We upgrade our adj. PBT forecasts by 114% and 53% in FY’17 and FY’18 respectively and increase our DCF derived TP to 207p. We continue to believe that Imagination is a highly attractive asset which, at the current level, is vulnerable to a takeover. Buy.
Imagination has released an update on its restructuring activates. The group will reduce its cost base by an additional £12.5m on a net annualised basis. This is on top of the £15m of cost savings previously announced, bringing total savings to £27.5m. Importantly, the three core businesses, PowerVR, MIPS and Ensigma will be unaffected by these cuts. We recently outlined a scenario involving £8.5m of additional savings, which resulted in us increasing our target price to 191p. Today’s announcement goes further, without affecting the core businesses, which we expect to be well received. Additionally the group has seen considerable interest in Pure, which it is expecting to sell by the end of 2016. We continue to believe that Imagination is a highly attractive asset which, if the share price remains depressed, will be vulnerable to a takeover. Buy.
We visited Imagination in Kings Langley yesterday. In our last note we outlined a scenario where the group reduced R&D costs by a further £8.5m, which would result in our DCF derived TP increasing to 191p. While we do not make any changes to our current forecasts, we view this scenario as increasingly likely and upgrade our TP accordingly. We continue to expect the current trading environment to be tough, but given the strength of the group’s unique IP, believe any material share price weakness could bring potential bidders for the company out of the woodwork. We believe Imagination is a highly attractive asset and would expect a bid to be in excess of our new TP. We upgrade to Buy and increase our TP to 191p (from 151p).
Imagination Technologies Group Imagination Technologies Group
Imagination’s recent trading update highlighted continued weakness in current trading which will result in an EBIT loss for the year. Alongside this the group announced significant restructuring initiatives, a change in CEO and a full operational review of all R&D expenditure. We make significant downgrades to all forecast years however, the change in strategic direction should be the focus for investors. We expect a further operational update in the next few months which could spark further opex forecast reductions. We believe that in PowerVR and MIPS, Imagination has two leading IP platforms with significant strategic value. Our DCF results in a target price of 151p, leaving the shares as a Hold, but we believe there is the potential to unlock significantly more value either via a sale or as a result of the operational review.
Imagination’s interim results to 31st October show the impact of a slowdown in semiconductor and smartphone markets, as well as the previously flagged specific customer issue. Group revenue in H1’16 of £71.1m (N+1Se: £77.0m) and adjusted operating loss of £7.3m (N+1Se: £3.7m) are behind our forecasts, which were downgraded in September. The group continues to sign significant licence deals which will increase medium term royalties, including a new multiyear multi-core licence agreement for PowerVR Graphics. Unit shipments are expected to be stronger in H2 however the timing of recovery is uncertain given macro conditions. The group is reducing planned investment further to help mitigate the slowdown however we expect to make further downgrades to our forecasts. We continue to believe that Imagination is creating significant value within the business but the positive impact on the financials will increasingly be seen beyond our forecast period. We place our recommendation and price target under review.
Imagination Technologies has announced that it has appointed Guy Millward as Chief Financial Officer following the resignation of Richard Smith (who is joining Sepura) in July. Guy will join Imagination on 1st December 2015, taking on the role of CFO on 21st December post the group’s interim results on 15th December. Guy is well known to us and investors, most recently from his role at Advanced Computer Software Group. We believe that Guy was a strong addition to the ACS board until its sale in mid-21015 and that he should prove to be a good appointment for Imagination.
Imagination’s Q1’16 trading update on Wednesday highlighted a combination of macro and customer specific issues which will impact short term unit shipments, resulting in an expected loss in H1’16. MIPS volumes are unaffected and licencing activity remains steady, benefitting from the strong pipeline going into the year. We downgrade our forecasts for FY’16 and FY’17 and introduce FY’18 forecasts, where the positive impact of recent strong licencing activity begins to come though. Including the new forecasts in our DCF and moving 1 year forward results in our TP nudging up to 267p (from 265p). We continue to believe there is significant long term value being created both within MIPS and the wider group and as such maintain our Buy stance.
Imagination has released a trading update for the period from 1st May to 15th September. The group entered the year with an increased licencing backlog which drove steady licencing activity during the period. Overall unit shipments and royalty revenues were below expectations however due to a mixture of weaker overall market conditions and one customer specific issue. H1’16 revenue is now expected to be lower than forecast, leading to a loss for the period. While H2'16 is expected to be stronger, we expect to reduce our forecasts for the full year. We welcome comments around management of the rate of investment in-line with revenue performance, which should mitigate the bottom line impact to some degree. Today’s update is clearly disappointing but we continue to be encouraged by the progress made within MIPS and the medium term momentum being shown in the business.
Imagination Technologies has reported its final results for the year to April 2015. Total revenue of £177.0m and adjusted operating profit of £21.1m are in-line with expectations set at the interim update in March. The group has seen good growth in royalty revenue with traction in MIPS particularly encouraging. With management focused on cash generation and increasing operating margins going forwards and a broader range of products, we believe the group is well placed to perform from here. We remain Buyers.
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