Set-top box maker Pace has seen its share price rise by around 20% in less than a month, so a positive trading update has been an excuse for some profit taking.
The company said 2012 revenues were expected to be flat on the 2011 figures, with no impact in the second half from a serious disruption in the supply of hard disk drives after floods in Thailand. Previously Pace had expected a $4m impact on earnings in the final six months of the year.
Net debt will fall faster than forecast to $200m by the year end, and it has seen strong demand for its media server products from Comcast and DirecdTV in the US.
But after the recent rise, its shares have dropped 9.2p to 185.8p. Analysts are still positive, however. Alex Jarvis at Peel Hunt kept her buy recommendation and raised her target price from 200P to 250p:
2012 revenues should be 1% ahead of our forecast and EBITA/earnings per share 3% ahead, helped by lower hard disc drive costs. Free cash flow generation is significantly ahead of guidance earlier in the year, at around $160m. The combination of an attractive free cash flow yield of around 16% and the prospect of a debt-free balance sheet in the first half of 2014 support our raised target price.
Jonathan Imlah at Canaccord Genuity said:
We are encouraged not only by the ongoing cost reductions at Pace but particularly by the effective measures taken to improve cash generation and to transform the supply chain, which should have long-lasting implications.
The continued rise in the share price diminishes the chances of the much-talked-about combination of Pace and Motorola. That said, we expect further progress on both costs and cash generation over the next few months. This in turn should feed through into a higher rating.
