Britain’s biggest tech group, ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US), is due to announce its half-year results on Wednesday this coming week (24 July).
At the time of writing, the shares of this world leader in semiconductor intellectual property are trading at 912p – up 8% over the last six months, in line with the FTSE 100.
How will ARM have performed in the first half compared with last year’s first half? And is the company on track to meet analysts’ consensus forecasts for this year’s key full-year numbers? Here’s your cut-out-and-fill-in table!
| H1 2012 | FY 2012 | H1 2013 | Forecast FY 2013* |
Forecast FY growth |
|
|---|---|---|---|---|---|
| Revenue | £268m | £577m | ? | £700m | +21% |
| Operating margin | 45.5% | 45.6% | ? | 48.6% | +300bps |
| Normalised earnings per share (EPS) | 6.9p | 14.7p | ? | 20.9p | +42% |
| Dividend per share | 1.7p | 4.5p | ? | 5.6p | +24% |
* Source: Digital Look
ARM’s results for 2012 came in ahead of market expectations — as they so often do. The company has also made “an encouraging start to 2013”, with more leading companies choosing to deploy ARM technology in their products.
First-quarter results, announced in April, were sufficiently strong that management was confident enough to guide on revenue for the full year “to be at least in line with current market expectations”. That led analysts to upgrade their full-year revenue forecasts from £675m before the first-quarter results to £700m today.
Turning to revenue expectations for the first half, the table below shows revenue and growth for the past five quarters.
| Q1 2012 | Q2 2012 | Q3 2012 | Q4 2012 | Q1 2013 | |
|---|---|---|---|---|---|
| Revenue | £132.5m | £135.5m | £144.6m | £164.2m | £170.3m |
| Increase from previous year | 14% | 15% | 20% | 19% | 29% |
As you can see, ARM got off to a flying start to 2013 with revenue up 29% to over £170m for Q1. However, management told us:
“Relevant industry data for Q1 2013, being the shipment period for ARM’s Q2 royalties, points to a sequential decrease in industry-wide revenues of around 10%. In this context we expect group revenues for the second quarter to be in line with current market expectations.”
According to the consensus forecast from Yahoo Finance, Q2 revenue is expected to come in at £165.5m — lower than for the first three months of this year, but 22% up on the equivalent quarter of 2012. If the Q2 consensus is on the money, look out for first-half revenue of around £337m (up 26% on last year) within next week’s results.
Margin, earnings and dividend
ARM’s operating margin jumped to 50.5% for Q1 this year, compared with 45.6% for 2012. Digital Look forecasts suggest the Q1 50.5% margin won’t be sustained for the rest of the year: an overall 48.6% margin for the year — an increase of 300 basis points (bps) over 2012 — has been pencilled in. Shareholders should keep an eye on the Q2 operating margin to see how it measures up against Q1 and the full-year forecast.
Analyst forecasts of over 40% growth in EPS for 2013 imply first-half EPS of around 9.8p, compared with 6.9p for last year’s first half. Similarly, estimated dividend growth of 24% for the annual dividend suggests a proportional increase in the interim payout to around 2.1p a share from 1.7p last year.
At a share price of 912p, ARM is trading on 44 times 2013 forecast earnings, and offers a dividend yield of just 0.6%. But there have been opportunities for investors to buy into Britain’s top tech company on a cheaper rating in the recent past: 36 times forecast earnings at 760p just a few weeks ago.
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> G A Chester does not own shares in ARM Holdings.
