Broker snap: Jefferies trims target for Imagination Tech after H1 miss

11th Dec 2013 09:33

Jefferies has trimmed its target price for chip firm Imagination Technologies Group (IMG) from 392p to 364p after the company's first-half results and guidance disappointed on Wednesday.Sales rose to £85.2m during the six months to October 31st, up 19% year-on-year but some 9% below Jefferies' forecast for £93.3m. "Difficulties were seen in both royalties (volumes mainly) and licensing (still weak)," the broker explained.Gross margins grew 200 basis points on better product mix, but operating expenditure rose markedly due to the inclusion of MIPS, the processing technology firm which was acquired last year. As such, the adjusted earnings per share result of 3.8p in the first half was "narrower than hoped", Jefferies said."A weaker top and bottom line talks of a still difficult environment for IMG. We continue to see IMG well-placed for the coming changes in SoC processor design but are mindful of competitive fears (ARM Mali strength), the slowing high end handset dynamic and the weaker licensing environment."Nevertheless, the broker maintained its 'buy' rating, saying that the current valuation - stock trading at 15 times 2016 estimated earnings - "misrepresents the strength of the underlying fundamentals and the opportunities with MIPS in particular". It said it still sees IMG as an "attractive investment opportunity".The stock was down 14.62% at 212.6p by 09:38 on Wednesday.BC