On Tuesday ARM Holdings managed to again beat analysts' estimates for license revenue growth, which was a phenomenal 54 per cent. A record 48 licenses were signed, versus the typical between 25 to 30. However, pessimists argue that this partly reflects Asian groups moving into lower-end smartphones and devices who may not survive as the market matures. That is important as revenues from royalties originate from new licences. However, the company argues that this demand reflects a broad range of end-market uses. Royalty revenues rose by a lower-than-forecast 16 per cent, as demand for high-end smartphones softens.
So, with Arm guiding to final quarter sales of $290m - much as expected - where does this leave investors? The shares
at 1,047p give an enterprise value of more than 16 times 2014 sales, as pricey as ever. That makes the stock vulnerable to jitters from revenue quality to competitive threats. The core investment case, however, has not changed, the Financial Times' Lex column says.
Things have change a lot in the last year for GKN's share price, up by 61% year-to-date. Investors overreacted to a trading statement a year ago highlighting weakness in the European automotive market. However, the company's third-quarter trading statement confirmed a strong performance from the commercial aerospace side. As well, its Driveline unit reported a rise in light vehicle production which was especially strong in China and North America. The weakest side remains Land Systems, which serves construction and industrial markets that remain flat.
"I chose GKN as one of my shares of the year because I felt that last autumn's statement had produced too negative a reaction, but I am not sure they have a lot further to go this year and investors might consider taking some profits. Yet on 13 times' earnings they remain an attractive prospect long-term," says The Times' Tempus.
New Whitbread Chief Executive Andy Harrison's strategy is simple, expansion. Costa will double sales by 2018 by building twice as many outlets. Premier Inn will grow the number of rooms from 53,000 in the UK to 65,000 by 2016 and 75,000 two years later. This expansion will allow profits and dividends to grow by above 10%, as they have done through the recession. Further, market forecasts show that the progress made up to the halfway point of the year in terms of sales, profits and dividends will continue. However, as Simon French at Panmure Gordon says, at this level the share price can be justified only by putting Costa on the same rating as Starbucks and Premier on the same as InterContinental Hotels; neither business is remotely comparable.
"The outlook statement was light on detail, saying only that those expansion plans are on track. Mr Harrison is well aware of the market's reaction if they fall short. The question is whether this growth can support Whitbread's stellar rating. I suspect not; this looks like a good time to take profits," Tempus explains.
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