A 13-Bagger With Further To Go

IMG are an amazing company that seem to slip below many an investor's radar. I have followed, and owned them, for many years and have profited again and again from the sheer ignorance of the brokers and analysts. Time and again you see mention in the press of sell notes for "chip make Imagination" or Digital Radio company Imagination" from brokers who actually attend briefings the company put on for them. One of these same brokers put out a sell note 3 days before these results saying they were poorly exposed to Android phones, and thus too reliant on Apple, while Android was seeing most of the growth. This very analyst attended a briefing after the AGM in August that pointed out very clearly that IMG are in over 50% of current and planned Android phones, and are in fact the reference design for the new Android platform and as such would be the ONLY graphics chip supplier in the first generation of these new phones. Is it any wonder that informed Fools treat brokers and analysts with such disdain.

Fortunately, unlike many other smaller companies and most larger companies, the IMG management are very good to small shareholders. Their AGMs are immensely informative, management is very approachable and very honest. Most refreshing.

The key things for would be investors to understand about IMG is the future size of the smartphone and tablet markets - 1.2bn smartphones per year by 2015. IMG management have a three year ahead view of the handsets coming out, and know who has won the design win for them. When the CEO says they will be in 50% of these devices, he really does mean it. This is a trebling of device count in the next 5 years, from 200m to 600m, but does not include the 50+ million tablets that will be sold by then (of which IMG currently have around 80% of the market, which will rise now the Amazon Kindle is out), plus the smart TVs, 3d sat navs, DAB radios and plethora of other devices their IP is in.

With multiple licensing wins this year, which pay in the £1m-£2m range compared to the (allegedly) free license offerings from ARM which have resulted in almost zero design wins, and licences ranging from Apple and TI to Samsung and Qualcomm, plus big players in the far eastern markets that may of us have never heard of, such as Renesas, Mediatek and being in such devices as the Apple iPhone, iPhone 3G, 3GS, and 4S, the iPod Touch, iPod nano, iPad, iPad2, many many Android phones from HTC, SonyEricsson, Samsung, Huawei, Lenovo, and tablets from RIM, HP, Amazon, as well as netbooks from pretty much anyone who uses Intel Atom chips, IMG are at the very forefront of all things graphical in the small tech world. Oh, and they are also in TV's, sat nags, and pretty much control the UK and rapidly expanding world DAB radio market, and are set to be the lead player in the new Windows 8 phones.

As you can tell, I'm a big fan.

Tony