Broker tips: ARM, CSR, Desire, Rockhopper

27th Oct 2010 10:40

Chip designer ARM Holdings has been short of friends this week, with both KBC Peel Hunt and Panmure Gordon suggesting the share price is a bit toppy, and now Nomura Securities has weighed in with a downgrade to its fourth quarter earnings forecast.CSR's third quarter results "were in line with expectations on the earnings line with the dollar top line being 7% ahead of consensus, but operating margin was a tick weaker than expected on 1) stronger hiring, 2) currency and 3) unfavourable accounting of derivatives," Nomura analyst Dr. Gunnar Plagge notes."While the main positive number surprises on the top line came from positive processor licensing dynamics and one-off development systems (+ 14% and +22% ahead respectively, while processor royalties and the Physical Intellectual Property Division came in broadly inline), we noted an encouraging interruption of the strong Processor Division average royalty per unit decline witnessed over the past quarters driven by Cortex adoption," Dr. Plagge added.With the currency environment likely to be less favourable to ARM in the final quarter of the year Nomura has cut its fourth quarter earnings per share forecast by 12%, but left its 2011 and 2012 numbers unchanged.The broker is neutral on the stock and has a price target of 330p.Panmure Gordon has been reading the runes following Bluetooth chip specialist CSR's trading update on Wednesday morning and thinks that full year earnings may now be around 4% below market consensus.CSR's third quarter figures were ahead of market expectations, with the company enjoying strong margins, but Panmure Gordon analyst said the outlook for the fourth quarter suggests revenues will be about 14% below consensus."The company is guiding to fourth quarter revenues of $170-185m, which equates to a full year range of $786-801m. At the mid point we believe these are some 14% and 4% below consensus respectively. Before the results, full year consensus revenues were $827.9m (Panmure Gordon: $819.8m)," Davis said."Capacity constraints continue to affect Global Positioning Satellite products, while the company is not benefitting from the growth in smartphones. These themes are well understood, but the extent of the fourth quarter guidance is clear. For 2011 the company expects growth from a number of different design wins," Davis added.The broker, which has a "buy" rating and a 500p target price for the stock, expects to cut its current full-year earnings forecasts by 5-10% following CSR's third quarter update.Westhouse Securities has reminded investors that oil explorers tend to have more failures than successes, and believes that despite some disappointing results from drilling in the Falklands recently, local operators Desire Petroleum and Rockhopper Exploration are still worth a punt.The two companies have signed a contract for marine seismic acquisition services with Polarcus Limited, for the use of the seismic vessel MV Polarcus Nadia. "Under the terms of the contract, the companies will acquire 3D seismic on areas of licences PL003 and PL004 (Desire, 92.5%; Rockhopper, 7.5%), as well as areas within Tranche F and Tranche I (Desire, 100%) and PL024 (Rockhopper, 100%). The Nadia is expected to commence the joint survey in December 2010, with completion by end April 2011," Westhouse states.In making its "buy" case for both companies, Westhouse concedes that while the share prices of explorers are, naturally, event driven and that recent events in the Falklands have disappointed, "from a longer-term perspective, the picture is not nearly as gloomy, given additional funded drilling planned by Desire and appraisal activity planned by Rockhopper.""That said," the broker goes on to say, "there may be further bad news in the near term for Desire, with a sidetrack at Rachel currently drilling ahead, and due to finish in the coming days. With an unsuccessful sidetrack, we would expect a modest fall in the shares, given that most of the bad news from Rachel is priced in already."Westhouse has reduced its price target for Desire to 109p to reflect the initial disappointment with Rachel and also trimmed its Rockhopper target price to 492p.