Raspberry Pi Holdings PLC (LSE:RPI) appeared to have impressed most investors with its first results as a listed company, though the report is not likely to have dispelled the sort of concerns that have led JP Morgan to maintain a sizeable short position on the shares.
Debut half-year numbers from the maker of single-board computers (SBC) were broadly in line with City expectations, despite some of the underlying moving parts differing from expectations, and the full-year outlook was kept unchanged.
Inventory issue
One area under the microscope was that higher than usual levels of customer and channel inventory were still being seen.
This is acting as a brake on growth in sales volumes in the first half and into the second, with the company saying this situation is not expected to fully unwind until "towards the end of the year".
At the time of the IPO back in June, analysts at Jefferies said, the Cambridge-based outfit expected the inventory correction to end around the third quarter, resulting in a stronger second half than first.
"However, with the inventory correction now expected to continue till year-end, we are now looking at a slightly stronger H1 than H2 for revenues and earnings," the investment bank's analysts said, meaning they left their full-year forecasts for revenues, adjusted EBITDA, earnings per share and net cash unchanged.
Overall, the Jefferies team felt the results were "strong" thanks to sales of 1.1 million units of Raspberry Pi5s at higher average selling prices (ASP) to help compensate for lower overall volumes.
This meant profits in the first half were higher than expected and enabled full-year outlook to remain unchanged.
Reserve judgement
This was an important boost for the shares, which were floated at 280p in June, quickly soared to around 440p before sliding back to 320p earlier this month. They climbed 9% to 379.56p by lunchtime after the results.
"The golden rule of any IPO is not to miss earnings expectations in the first year as a listed business," said Russ Mould, investment director at AJ Bell.
"Raspberry Pi has so far managed to navigate a few twists and turns to stay on track, but the performance isn’t perfect."
Although the company implies that the inventory issue will sort itself out, Mould said it is "a major risk for investors to consider", even though the skew of sales towards higher margin products has boosted overall profit.
"Certain investors will be staying on the sidelines, waiting for another set of earnings to be reported before making a firm judgment on whether to buy the shares or not," he said.
"The latest figures offer some reassurance but the fact they aren’t perfect could leave some lingering doubts about the company in parts of the investment community.
"So many stocks have failed to live up to their IPO hype and that’s left certain investors sceptical about rushing to back new flotations until they have a longer track record as a listed company."
Industry supply chains and pricing
Jefferies noted that there "were concerns" at the time of the IPO about the effect on profit margins in 2025 of rising prices for the dynamic random access memory (DRAM) used in Raspberry Pi's SBCs.
However, DRAM pricing has been "benign" in recent months, the analysts note, with Raspberry Pi building DRAM inventory for 2025 sales at close to 2024 pricing levels.
While unit volume and revenue visibility for 2025 is low, given the continuation of the inventory correction, the Jefferies analysts said "This is not unique to Raspberry Pi, but has been talked about by many other industrial supply chain companies in recent months, including all semiconductor vendors".
"We currently expect the correction to end by year-end, in line with management's view and feedback from other suppliers. It would be normal to expect a rebound in orders and sales, once the correction is completed."
This meant Jefferies left its 2024, 2025 and 2026 forecasts unchanged, with strong industrial and IoT demand expected to be the primary driver of revenue growth.
House broker Peel Hunt said its view is that "Edge computing will do to Raspberry Pi what the desktop did to Microsoft, the smartphone did to Apple, and the data centre is doing to NVIDIA".
It has the stock trading on 17 times 2025 forecast earnings on an EV/EBITDA basis, versus peers on 16.5x to 24x.