Should you buy ARM Holdings plc and RPC Group plc after recent takeovers?

Bilaal Mohamed asks whether you should be buying ARM Holdings plc (LON: ARM) and RPC Group plc (LON: RPC) after recent acquisitions.

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Today I’ll be discussing the outlook for semiconductor and software design company ARM Holdings (LSE: ARM), and plastic packaging business RPC Group (LSE: RPC). Both of these companies have recently announced acquisitions – but does that make them more attractive as investments?

Smart vision of the future

Last month chip designer ARM Holdings acquired imaging technology products company Apical Ltd for $350m. Apical is one of the UK’s fastest-growing tech firms, specialising in the field of imaging and embedded computer vision technology. Its tech is being used in more than 1.5bn smartphones and around 300m other consumer electronics devices, digital cameras and tablets.

Cambridge-based ARM said the acquisition accelerates its ecosystem’s growth into new markets such as connected vehicles, robotics, smart cities, security systems, industrial and retail applications, and devices connected to the so-called ‘Internet of Things’. Apical’s technology would also extend ARM’s product portfolio in existing markets such as smartphones and cameras. Shares in FTSE 100 firm ARM have underperformed over the last 12 months, down 12% from a year ago, but perhaps this could be an opportunity to buy into ARM’s growth story?

Brokers are certainly optimistic about the firm’s prospects, with Exane BNP Paribas recently reiterating a £13 target price on the stock, a significant premium to the current price of around £9.75. ARM trades on a forward price-to-earnings ratio of 28 for the current year, falling to 24 for the year to December 2017. With the shares trading on multiples of between 43 and 75 over the last five years, I believe this could be a great time to snap them up at a very reasonable price.

The complete package

It seems that ARM isn’t the only firm that’s been splashing the cash recently, as plastic packaging company RPC Group last week announced that it has agreed to buy British Polythene Industries for £261m. FTSE 250 firm RPC will pay 470p per share in cash and 0.60141 of new RPC shares for British Polythene, valuing the Scottish Small Cap firm at £261m. The deal works out at around 940p per British Polythene share, a 30% premium to the stock’s closing price of 725p prior to the announcement of the deal, when the company’s market value stood at £198.9m.

Rushden-based RPC said the deal will provide it with exposure to an adjacent polymer market and increase the range of polymer conversion technologies in its portfolio. It’s in line with its Vision 2020 strategic plan, which includes a push to drive strategic consolidation in RPC’s European markets.

Our friends in the City are expecting RPC’s growth to continue at a healthy rate, with a 24% rise in earnings predicted for the year to March 2017, followed by a further improvement of 10% in fiscal 2018. This would leave the shares trading on 15 times forecast earnings for FY2018, which in my opinion leaves room for upward movement, provided growth forecasts are realised.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and RPC Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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