Stock of the day 24/05/2016 – Imagination Technologies Group PLC

Can the Apple-supplying chip-designer Imagination Technologies regain its momentum following its end of year update on Thursday?

Largely against the run of the rest of the markets, and following a sharp post-profit warning plunge at the end of 2015 Imagination Technologies spent most of the first 3 months of the year on the rise. A dip across the start of January was soon put aside as rumours began to circulate that the company was looking to offload its Pure digital radio business, causing the stock to cross £1.40 by the start of February.

Interestingly the confirmation of the sale on February 8th actually caused a brief fall for Imagination, as it came alongside the announcement that CEO Sir Hossein Yassaie was stepping down as part of a major restricting strategy. Of the £15 million it intends to save through the measures £2 million will be pumped into its flagship PowerVR division, which supplies everything from Apple to Samsung to Blackberry with a variety of hardware and software.


(Source: IT-Finance.com 24/05/2016)

Whilst it came as a bit of a shock that newly unveiled strategy helped the stock continue its climb, hitting a 3 month high of £1.80 by the beginning of March. Imagination then took a bit of a tumble in the first fortnight of March only to surge by nearly 10% as the company revealed it was accelerating the aforementioned cost-cutting plan that involved the loss of 350 jobs as it aimed to add another £12.5 million onto the previously announced £15 million in savings.

Things got really interesting on March 22nd, with news that Apple had held talks to take over the company causing the stock to at one point surge to £2.25 before settling at a more reasonable £1.96. Yet all that excitement actually ended up taking the wind out of Imagination, with the reality that Apple wouldn’t be making a bid any time soon alongside the smartphone giant’s own disappointing Q2 figures leaving the stock hovering around £1.50 by the start of March.

Since then there has been even more M&A chatter, with news that China’s Tsinghua Unigroup International Co. Ltd had taken a 3% stake in the first pushing the stock back into the £1.70s. Imagination Technologies has a current trading price of £1.70 (IT-Finance.com, 24/05/2016).

In terms of its full year update Imagination Technologies is likely to slip to a £9.2 million annual operating loss, largely thanks to the smartphone slowdown that recently has plagued Apple’s own stock price.

Imagination Technologies Group PLC has a consensus rating of ‘Hold’ with an average target price of £1.68.