Imagination Technologies
Imagination Technologies (LSE: IMG) extended its rally today, with its shares climbing more than 4% higher by early afternoon. It shares are now 10% higher than Friday’s close, following rumours that the company could become a possible takeover target. The semiconductor sector is consolidating, particularly for smaller players, as larger rivals strengthen their technical capabilities.
City broker Liberum suggested that the recent sell-down by Intel, makes the company a potential target for electronic design automation companies including “Synopsys and Cadence, or IP companies such as Rambus”. Liberum reckons that Apple itself could be interested in Imagination Technologies, given the use of Imagination’s graphics IP in its iPhone. Apple already owns a near 10% stake in Imagination, and accounts for just under a third of the company’s revenues.
Imagination is not as expensive as many tech stocks. Its forward P/E ratio is 28.5, despite strong double digit earnings growth. Although the company faces stiff competition from ARM, Imagination Technologies is attractively valued.
Dixons Carphone
Dixons Carphone (LSE: DC) raised its full year pre-tax profit guidance to more than £375 million, from the previously guided range of between £355 million to £375 million. In the UK, the collapse of Phones4U helped to drive like-for-like revenue growth to 6% for the full year.
The company is seeing its market share for electrical products and for mobile grow in the UK & Ireland, Nordics and Greece, despite difficult trading conditions and weak consumer sentiment on the continent. A strong Christmas period helped to accelerate like-for-like revenue growth to 9% in the fourth quarter.
The company’s valuation is higher than its peers, with a forward P/E ratio is 18.0. But Dixons Carphone’s ability to gain market share from competitors reflects the company stronger retail channel, which could potentially yield faster earnings growth. Its shares were 1.6% lower, at 471.4p, by early afternoon.
WH Smith
WH Smith (LSE: SMWH) reported total group sales grew by 1% in the 13 weeks leading to the end of May. Its travel-oriented business, which operates in railway stations and airports, saw revenues grow by 8%, which offset the 4% decline in its traditional high street stores. Shares in the company were up almost 5%, to 1,614p, by early afternoon.
Although its high street business is shrinking because of technology changes, the company has a strong record in improving margins and delivering consistent earnings growth over the past decade. WH Smith is fairly valued on its earnings growth prospects, with a forward P/E ratio of 18.0 and an expected dividend yield of 2.5%.
Workspace Group
Shares in Workspace Group (LSE: WKP) rose more than 5% to 970p by early afternoon, as the company reported strong rental income gains. The REIT’s net rental income for the year rose by 15%, with rent per square foot up 15.8%. Benefiting from rising property values in London, its property valuation rose by 30%, which helped to lift its net asset value (NAV) by 42% to £7.02 per share.
The REIT’s sizeable redevelopment and refurbishment pipeline, which represents 26% of its total portfolio value, will help the company to grow its NAV. But, Workspace is now valued at a hefty 38% premium to NAV, and the REIT has a forward yield of just 1.4%. Its shares appear to have risen too much too quickly.
