Thursday tips round-up: Imagination, Ophir Energy, Whitbread

13th Dec 2012 07:09

Investors in Imagination Technologies are nervous. Not only is the company in the midst of a transition towards becoming a larger organization with a more diversified product portfolio, a difficult task in and of itself, it is also trading at near 30 times its profit. The latter means that there is little room for error as the outfit also attempts to simultaneously penetrate emerging markets, ramp up production volumes and increase its investment in research and development (R&D) personnel. In the end the question is how it manages the transition to a larger business with a wider range of products, or whether it goes the way of other small UK high-tech companies and is swallowed by a competitor. That prospect goes some way to justify the current multiple of 28 times' this year's earnings. But it is unlikely to be a smooth ride. Hold, unless you fancy a punt on an eventual bid, says The Times´s Tempus column. On Wednesday shares in Ophir Energy fell despite a positive update on the situation of its Jodari prospect, off Tanzania, which it shares with BG Group. Not coincidentally, the price of the company´s stock had just gotten back to levels last seen at the start of his year, before it carried out its latest round of capital raising. For Tempus that goes to show that what has been hanging over the shares has been how the company plans to pay for the next round of exploration, whether by selling assets or going back to the market. Neither were there any further news of the other field in deeper waters off Tanzania, or of the decision in the summer to find partners for two other African prospects. Until there is some movement on these, or on future financing, the shares will probably continue to tread water, Tempus believes. Whitbread is benefiting from the woes of its rivals - and this should continue into next year, despite the challenging backdrop, as the company benefits from its "robust" business model. Nevertheless, it does need to execute on its expansion plans, both at home and abroad, without sacrificing the quality of its offering. With the above in mind, The Telegraph´s Questor team says that it has not looked at Whitbread shares since September 2010, when a buy was recommended at £15.02. They have since performed very well. Expansion plans should continue to boost operating profit, which has risen by almost 70% over the past five years. Trading on a 2013 earnings multiple of 16, falling to 15 next year and yielding a prospective 2.3%, the valuation looks pretty full, the newspaper adds. Indeed, the average price target of the 16 City analysts monitored by Bloomberg is £23.63, some 5% below the current price. Hold, Questor says.Please note: Digital Look provides a round-up of news, tips and information that is impacting share prices and the market. Digital Look cannot take any responsibility for information provided by third parties. This is for your general information only as not intended to be relied upon by users in making an investment decision or any other decision. Please obtain a copy of the relevant publication and carry out your own research before considering acting on any of this information.AB