Imagination Technologies Group plc (OTCMKTS:IGNMF), the British based R&D company focusing on the ownership of semiconductor processor's intellectual property, is today's new profile. The company's share price fell last week by 75% after Apple Inc. communicated that it would not continue working with this supplier.We are always looking for turnaround opportunities. Once we got to know the financial figures of this company, we decided that we had to inform about it. We will show them later, but first of all take a look at the graph and the impressive amount of share exchanged last week:SourceThe company lost Apple's contract, but it has been restructuringImagination Technologies is engaged in the creation and licensing of semiconductor processor IP for graphics, video and vision processing, general purpose and embedded processing (CPU & MCU), and multi-standard communications to enable connectivity. It stated in the annual report that over nine billion pieces of technology, such as phones, computers, home electronics and handheld multimedia, contain the technology owned by Imagination Technologies.The company announced last February 2016 that it was going to initiate a "full analysis" of all R&D expenditures. The exact words were the following:
"The objectives of our revised strategy are to build IP solutions of real scale with customers, across a wide range of markets, where we can provide differentiated offerings and build defendable positions; delivering long-term value to shareholders in the process. We will do this by focusing investment on our core IP businesses, providing outstanding service to customers, as well as rewarding careers to our employees." Source
This was announced weeks before Apple Inc (NASDAQ: AAPL), which was one of its main customers, decided to stop using its technology. Did the company expect it? The company might have decided to issue the press release a little later, or asked the Iphone producer to release the information a little later. To us it doesn't matter. The most important now is to assess whether the company will be able to obtain the revenues that once it had due to Apple.There is another key factor: the company is in a process of restructuring. This is the first action that any company in trouble needs to do in order to start a turnaround. This is good news since the company reported it long time ago. We found in the annual report, in the interview with the CEO, Andrew Heath that the company was restructuring.
"How is the restructuring progressing?I have been keen to accelerate the necessary restructuring required to put the business back onto a sound financial footing and to provide clarity for our customers, shareholders and colleagues alike. Acting swiftly and decisively will enable us to have the necessary resources to further strengthen our three core businesses. I fully appreciate that this has meant some difficult decisions have had to be taken. The actions that were initiated back in February and March are progressing to plan. The benefits will be delivered in full in this coming financial year." Source
How important was Apple Inc. for Imagination Technologies ?First of all, we could see in the annual report that the contract with Apple Inc. was essential for the group:
"There are a large number of agreements in place with the Group’s customers and partners. There are no parties with whom the Group has contractual or other arrangements which are essential to the business of the Group except the contract with Apple Inc." Source
Additionally, along with other important financial institutions, Apple Inc. was a shareholder of the group,. Have a look:"Relevant Shareholders
- Baillie Gifford & Co Ltd: 11.99%
- M&G Investment Management Ltd: 10.84%
- Standard Life Investments (Holdings) Limited: 9.04%
- Apple Inc,: 8.48%
- Newton Investment Management Ltd: 8.20%
- Neptune Investment Management Limited: 5.34%" Source
Turnaround? Let's look at the balance sheetWe do not really have sufficient strategic information to assure that the company will be able to obtain new contracts. However, we do have some information from the state of the balance sheet. If the company shows a solid balance sheet, we can be sure that the company has time to look for other clients. We are not measuring here the ability of the company to find new clients, but the time that stakeholders give the company to do it.As of March 30, 2016, the balance sheet shows $6 million in cash and cash equivalents, $66 million in total current assets and $255 million in total assets. The total amount of liabilities is $122 million and the company has no long term debt. Thus, the assets/liabilities ratio is 2x.ConclusionImagination Technologies is in trouble. It lost a very important contract with Apple Inc., which is an important shareholder as well. We believe that the company has time to find other clients or engage in new R&D opportunities, as the balance sheet looks very clean. The share price is discounting that the company may not be able to survive, and this may be an opportunity for risk takers and savvy investors. We encourage you to keep yourself informed about this company by checking its website or by subscribing to our newsletter.We will be updating our subscribers as soon as we know more. For the latest updates on IGNMF, sign up below!Disclosure: We have no position in any of the securities mentioned and have not been compensated for this article.
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