Imagination Technologies, which supplies graphic and video technology to companies including Apple, has been given a lift by the US company's record share price performance.
Imagination, which pleased investors with a better than expected full year profit in June, boosted by stronger licensing demand for its processor designs, has added 1.1p to 199.6p following an upbeat note from Liberum. The broker pointed to the Apple share price news as one of three factors which should support Imagination's shares. It said:
i) Apple's share price is back to an all-time high as investors buy ahead of its new product launches in September (iPhone 6, iwatch). Apple is Imagination's largest customer accounting for around 33% of revenue. All Apple's mobile products use Imagination's graphics. Imagination should therefore benefit from a new product cycle at Apple;
ii) Separately, a teardown of Motorola's 360 smartwatch shows that it uses a Texas Instruments Chip, which in turn relies on Imagination's graphics. This should be another source of royalty revenue growth for Imagination;
iii) Finally, helpful currency move. Imagination gets most revenue in dollars and has a large sterling cost base (transactional risk). It therefore benefits from a weaker pound versus dollar. A 1% change in sterling/dollar is a 3% or so move in earnings per share. Our model is set at $1.69 so if currency stays as is ($1.66) there is potentially a small earnings upgrade for Imagination (first in a long time!). Buy.
