Stock of the day 14/09/2015 – Imagination Technologies Group PLC

In a year that has seen the company ascend to the FTSE250, Imagination Technologies Group has run the full gamut of celebratory highs and worrying lows.

Can it continue its current flush period following its trading statement on Wednesday?

Things couldn’t have got off to a much better start to the year for the company; after opening 2015 at £2.31, Imagination Technologies was sporadically hitting £2.60 by the middle of March following Apple-inspired boosts (with the company, an Imagination shareholder and customer, having that record-breaking quarterly report at the end of January) and the February appointment of former Sony Ericsson boss Bert Nordberg as chairman.


(Source: IT-Finance.com 14/09/2015)

However, Imagination Tech investors were in for a sharp shock on March 18th as the company delivered its fiscal third quarter trading update. Falling over 10.5% to £2.31, the catalyst for Imagination’s tumble was a cut to its licensing outlook from 10% growth to a single digit number as the company described demand as ‘muted’.

This decline failed to slow down across April and May, culminating in a 2015 (and 5 month) low of £1.91 on the eve of the UK election results. The Tory win seemed to spark a bit of life into the stock and helped Imagination Technologies climb away from those lows to reach £2.20 by the start of June. The stock then received an extra boost in the form of a broker update from Liberum Capital, one that labelled Imagination as a potential takeover target due to the selling of Intel’s stake in the company at the start of the year, listing Apple, Cadence and Synopsys as potential suitors.

The Liberum-inspired £2.41 was Imagination’s highest price since its disastrous March update; frustratingly, however, it was a high that couldn’t last too long, with the stock ping-ponging between £2.20 and £2.30 for much of the month. Pre-full year jitters at the end of June had taken the stock down to £2.15, but an increase in revenue from £170.8 million to £177 million year-on-year helped soften the blow of a £12 million yearly loss as the company increased its R&D spending to £167.8 million.

This meant the stock climbed back into its £2.20 to £2.30 trading bracket at the start of July, before spiking into a £2.30 to £2.40 band for the rest of the month. Further gains across August lifted Imagination Technologies to £2.59, before the market-wide Chinese fears (and the Apple-related trouble it could bring the company) sent the stock back to its familiar £2.30 trading level.

Come September, however, the stock was once again saved by some takeover speculation, with analysts touting China’s interest in expanding into the semiconductor industry as a potential boon for Imagination Technologies. This helped send the stock to a high of £2.65, its best price since mid-February’s £2.67, and leaves it at a current trading price of £2.60 (IT-Finance.com, 14/09/2015).

Imagination Technologies Group has a consensus rating of ‘Hold’ with an average target price of £2.12.