Wednesday tips round-up: ARM, BG, FCAM...
A year ago, ARM Holdings forecast that about six billion of its chips would be sold in 2010, having just clocked up 1.5 billion in the third quarter, notes the Tempus column in the Times. This time around, ARM has done 1.9 billion and expects the year’s total to fall a bit short of 8 billion. These figures are worth bearing in mind when you read of tough times in the semiconductor industry and recent warnings from customers such as Texas Instruments about falling demand for its gadgets. These will inevitably feed through into falling orders for its chips, because ARM books this royalty income a quarter in arrears, so that weakness is already in the pipeline. There is no doubt that demand on the high street for the end product is flat; fourth-quarter growth should flatten off but not stop entirely. The shares trade erratically; they hit a ten-year peak of 651p in February but, up 14½p to 589½p yesterday, they have fallen 7 per cent since July on fears of a third-quarter slowdown. The multiple they are on at any given moment, now 40-plus next year’s earnings, is irrelevant. Hold for long-term growth, recommends the paper.
We have been fans of BG for some time now. And the FTSE 100 listed energy major, which was one of our 10 companies to follow this year, did not disappoint with its third-quarter results yesterday, says the Investment Column in the Independent. The headline numbers were better than expected, with operating profits at $1.86bn (£1.16bn) ahead of the figure pencilled in by City scribblers, but the real star of the show was BG's liquefied natural gas arm. The company now expects the division, which makes up over a quarter of the company's operating profits, to notch up $2.4bn in operating profits for the year, "exceeding previous guidance". BG is currently changing hands at under 1,400p, which puts it well below most analyst target prices. Citigroup, for example, using its discounted cash flow valuation, is targeting 1,550p. Moreover, it trades well below consensus net asset value estimates of 1,750p. Buy, recommends the paper.
Fund management was not the sector to be in this summer as chaotic markets led to a flight of investors, and F&C Asset Management has not been immune, writes the Tempus column in the Times. The company has also suffered from a sense of drift since activist investor Edward Bramson lost patience with the previous board and installed himself as chairman in February. Mr Bramson had said he would reveal his strategic plans for the company in the autumn; yesterday he did so. They can be summarised as cut costs, concentrate on core products in the institutional market and wait until spring before I say what plans I have for the retail side of the business. The shares, one of our Tempus tips of the year, were up 1½p to 63½p. Mr Bramson is playing a long game, but the signs are that the market is already moving on to his side.
Reckitt Benckiser, the household consumer goods giant, said it was on track to achieve "another year of above industry-average growth" after delivering barnstorming profit and revenue growth at its emerging market division, writes the Investment Column in the Independent. Still, the group – which last year acquired the Durex condoms to Scholl shoes group SSL International for £2.54bn – did not totally clean up yesterday, as its adjusted operating margin fell by 40 basis points to 26.3 per cent, dragged down, in part, by Reckitt Benckiser Pharmaceuticals (RBP). Indeed, Reckitt warned that its total growth will slow as it laps the SSL acquisition and the buy back of the distribution rights at RBP's Europe and its rest of the world business. The forward earning multiple of more than 13 also makes us cautious. Hold, suggests the paper.
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