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The Expert View: Imagination, Bloomsbury and Intermediate Capital
by Harry Brooks on Nov 22, 2012 at 05:01
Our daily round-up of analyst recommendations and commentary, also featuring The Paragon Group of Companies and Optos.
Our daily round-up of analyst recommendations and commentary, featuring Imagination Technologies, Bloomsbury Publishing, Intermediate Capital Group, The Paragon Group of Companies and Optos.
FinnCap warns Imagination Technologies faces bidding war for MIPS
Lorne Daniel, analyst at FinnCap, has warned that Imagination Technologies (IMG.L) may have to shell out more cash for MIPS on news that rival chipmaker CEVA has made an unsolicited offer.
Imagination earlier this month offered $60 million for MIPS, which Daniel said was 'very defensive', and intended to meet the challenge of ARM's increasing presence in the graphics chip market.
US-based Israeli company CEVA has trumped Imagination's offer by $15 million. 'CEVA ($326 million mid-cap) is not as big as Imagination Technologies but had $156m cash at 30 Sept whereas the UK business doesn’t have a lot of cash in comparison (£66 million at April year/end),' Daniel said.
'Chasing a CPU firm looked like a defensive move on Imagination’s part; notwinning it would leave it even more dependent on Apple business wheresuppliers are experiencing margin pressure.'
The analyst reiterated his 'hold' recommendation on the shares.
Shares in the group closed at 423.67p on Wednesday, down 17.13p or 3.89%.
Peel Hunt upgrades Bloomsbury Publishing to 'buy'
Malcolm Morgan, analyst at Peel Hunt, has upgraded Bloomsbury Publishing (BMY.L) from 'hold' to 'buy' following a slump in the share price.
The analyst noted that the shares have dipped 19p to 121p since the interim results to the end of August. 'It is our opinion the current price represents a buying opportunity and reiterate our 150p target price,' he said.
'Our sum of the parts valuation suggests a fundamental value of over 180p. At this level Bloomsbury looks cheap relative to the sector, is at a substantial discount to our sum of the parts value and is a material player in a sector that is seeing consolidation.'
Random House and Penguin's recent decision to merge represents the realisation of an emerging trend, Morgan said, and Bloomsbury could itself become subject to bid offers before too long.
Shares in the group closed at 121p on Wednesday, up 0.5p or 0.41%.
Shore Capital downgrades Intermediate Capital
Gary Greenwood, analyst at Shore Capital, has downgraded mezzanine finance provider Intermediate Capital Group (ICP.L) from 'buy' to 'hold' following a disappointing trading update.
The update revealed a sharp reduction in first-half pre-tax profits (PTP) to £39.6 million, down from £108.8 million a year ago and towards the lower end of Greenwood's £35 million to £50 million forecast.
'The fall in profit was primarily due to weaker performance from the Investment Company (IC), which delivered PBT of £22.4 million (H1’12: £91.7 million) versus our forecast of £15 million-£30 million, with the reduction in profit due to lower net interest income, lower capital gains and higher impairments,' the analyst said.
Although he said the valuation of the shares still looks attractive, he warned they may struggle to make progress in the short term given the uncertain outlook for the investment company.
Shares in the group closed at 293.88p on Wednesday, up 0.58p or 0.2%.
Berenberg Bank says 'buy' Paragon
Pras Jeyanandhan, analyst at Berenberg Bank, has reiterated his 'buy' recommendation on consumer finance business The Paragon Group of Companies (PAG.L) following a solid set of results and a rise in the dividend.
Monday's full-year results showed record results, with full-year earnings per share of 24.2p coming in ahead of consensus. The dividend was unexpectedly increased by 50% to 6p, and the management confirmed their intention to continue its progessive dividend policy so that by 2016 cover will be maintained within a 3x to 3.5x range (previously 5x).
Jeyanandhan welcomed the payout. 'Management raised the dividend as a sign of its commitment to return capital while still preserving cash to enable it to exploit opportunities to further grow the business (organically and via acquisition),' he said.
'Although the new dividend is still quite conservative given the scale of cash generation, this stepchange in policy has come sooner than we expected.'
The analyst said the 4% decline in the share price following the trading update was probably a result of profit taking following a strong run that has seen the share price rise about 60% over the past six months.
Shares in the group closed at 238.32p on Wednesday, down 2.38p or 0.99%.
Investec puts Optos under review
Sebastien Jantet, analyst at Investec, has put his 'hold' recommendation for retinal imaging company Optos (OPTS.L) under review following a set of results that he said raise more questions than they answer.
Preliminary results for the year to September 2012 came in ahead of expectations, thanks to better than expected revenue. Underlying growth hit 11%, and earnings rose 3%.
However, Jantet said there could be trouble ahead. 'With the outperformance driven by conversions, Optos will need to paddle very hard in FY13 to deliver its target of high single digit revenue growth,' he said.
'The gross margin decline is also a concern. Guidance would suggest upgrades, but with the statement silent on the state of the Daytona pipeline, which is the key to delivering the FY13 targets, we have no choice but to put our forecasts, TP and recommendation under review.'
Shares in the group closed at 177.47p on Wednesday, up 12.47p or 7.56%.