Broker Round-up: Imagination Technologies, SSE, Centrica, Aggreko, Vodafone, AstraZeneca

iPad and iPhone graphics chip designer Imagination Technologies’ shares are set to continue on a downward spiral, says Swiss bank UBS, which dropped its target price to 240p


iPad and iPhone graphics chip designer Imagination Technologies’ (LON:IMG) shares are set to continue on a downward spiral.

That’s if you trust the analysis from Swiss bank UBS, which dropped its target price on the mobile graphics specialist by another 20p to 240p a share.

It sticks by its ‘sell’ stance with its concerns now turning to royalties.

The company, whose shares are currently worth 262p on the market, extended its licence agreement last month with Taiwanese semiconductor company, MediaTek.

The deal will see Imagination receive licence fees and royalty revenues on the shipment of MediaTek’s SoC (System-on-Chip) devices using Imagination's technology.

However, UBS’s number crunching suggests MediaTek, which it thought accounted for 25% of Imagination’s royalties in 2013, is likely to source its graphics intellectual property (IP) from both Imagination and fellow Apple customer ARM Holdings (LON:ARM).

“We had previously assumed within our forecasts that IMG maintained >90% of MediaTek’s business but we lower this to 75% and indeed see further risk that this could yet go as low as 50:50 between ARM and IMG,” said analyst David Mulholland.

This and weak licensing in 2013 could make the company’s 1 billion unit target for 2016 “challenging” he adds.

Energy companies were once again in the firing line. But this time it was brokers that took aim, with Investec cutting its ratings on SSE (LON:SSE) and British Gas group Centrica (LON:CNA) to ‘reduce’ from ‘add’.

Rising political risk means the UK’s ‘Big Six’ energy companies face a “lose-lose” predicament short-term, it reckons.

Domestic energy prices have become the number one topic for politicians and last week’s select committee hearing confirmed the political headwinds for the UK’s main energy suppliers are freshening ahead of the 2015 election, the broker says.

“The political spotlight is well and truly focussed on them, across the political spectrum, and it is difficult to believe this situation will abate before the next General Election,” Harold Hutchinson said.

But it is not just the energy providers that were feeling the heat. Cantor Fitzgerald switched off its long-standing ‘buy’ recommendation on temporary power provider Aggreko (LON:AGK), which now only merits a ‘hold’ in its view.

The company remains the broker’s preferred play in the power rental space, but lacklustre trading conditions in Aggreko’s power projects division, which accounts for around 40% of earnings, have sparked the downgrade.

“The conversion rates in Power Projects have remained at all-time lows for longer than we were anticipating. We believe the shares are likely to trade sideways until we see firm evidence that the tide is finally turning,” Cantor explained.

A bid from AT&T for Vodafone (LON:VOD) could help the British mobile network giant’s shares up to 281p, according to Deutsche Bank.

The broker has been arguing since Vodafone unveiled the $85bn sale of its 45% stake in Verizon Wireless that it is looking cheap at current levels.

Given its rivals are valued at 5.5 times earnings, Deutsche thinks an offer will need to be nearer 6.5 times earnings to gain approval from Vodafone’s shareholders.

Oriel Securities went off shares in Conviviality Retail (LON:CVR), the group behind the Bargain Booze off-licence chain, which joined AIM in the summer.

It cut the stock to ‘hold’ from ‘add’, despite its impressive start to life on the junior market.

However, today’s 0.6% like-for-like sales number did nothing to inspire Oriel, which was looking for an upgrade.

“Having arrived at the market on an 8% yield, it has now dropped to less than 5%,” it said.

“With forecast momentum now questionable, we are bringing our recommendation back to HOLD.”

Elsewhere, UBS dropped drugmaker AstraZeneca (LON:AZN) to ‘hold’ on higher spending and urged investors to resume buying the shares in 12 months’ time. 

Engineer Weir Group (LON:WEIR) found itself bottom of FTSE 100 and is no longer on Numis’s ‘buy’ list when its third quarter statement came in below expectations.


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