Liberum downgrades Imagination Technologies, cuts target

Imagination Technologies will have to think quick if it wants to avoid the multiple headwinds bearing down on it, Liberum said on Wednesday.

The company, which designs microprocessors and then licenses the resulting technology patents, will see profit margins drop and licencing revenues fall, with its high debt levels compounding matters, Liberum said.

Its operating margins are likely to shrink by 4% in the first six months of 2016, having grown by 27% in the same period of 2012, pressured by R&D growing quicker than revenues, now at 73% of sales.

The broker lowered its estimates for revenue growth in fiscal yers 2016 and 2017 by 2% and 7%, respectively.

Furthermore, Apple is slowing and licensing is likely to soften due to customer consolidation, analyst Eoin Lambe explained.

“The company’s strategy is too skewed towards long-term investment, which could put the group at risk near—term,” Lambe said.

He downgraded his recommendation to ‘hold’ from ‘buy’ and his price target to 250p from 275p.