JPM downgrades Imagination Technologies on growth worries

The investment bank said there are a number of issues which means the company is facing royalty headwinds in the second half of the financial year.

It said a big issue was the difficult comparatives figures from last for key customer Apple.

“Apple comps in calendar 4Q15 and 1Q16 are difficult, meaning even if Apple is flat year on year in those quarters, the market will see that as positive (JPM estimate of iPhone and iPad volume in this period is for a 1.5% decline year on year), however, a flat environment would be negative for Imagination.”

It also highlighted the ongoing correction of semiconductor inventory, with a particular impact in China and emerging markets.

“Imagination has exposure to a number of companies shipping into these markets, causing risk to estimates.”

While the company has won key new wins, JP Morgan believed they’re only likely to be shipping at the end of 2016 and early in 2017.

The downgrade had sent shares falling, with the small cap company dropping 16.25p (7.43% to 202.5p per share at 1100 GMT.