The FTSE 100 index has flirted with record highs this year, closing in May at 6,873, its highest level for 14 years. It’s impossible to predict markets, and I can’t tell you exactly when the record will be broken, nor how high the market will climb. No one can, and only a shyster would suggest otherwise.
With the wider market becoming increasingly expensive it’s more difficult to find areas of value. But they do exist, and technology shares in particular have sold off sharply since January, amid fears that the sector’s rapid gains could be unsustainable.
ASOS
Asos (LSE: ASC), the online fashion retailer, is down 50% this year. Long-term shareholders have enjoyed spectacular returns, and while I’m not without my reservations about the company, there’s no reason not to take a look now that the shares have fallen.
Some £1.7bn was wiped off Asos’s valuation in just one session as it revised down its margins guidance from 6.5% to 4.5%. This was mainly due to a slowdown in international sales, which is the firm’s most profitable business making up two thirds of total sales.
Asos prices off its UK stock file meaning the continued strength of sterling has been a problem. A forthcoming system update should allow for local pricing, so customers in markets such as Asia and Russia will enjoy more attractive prices, and sales should pick up as a result.
An increase in capital expenditure on warehousing and computing should, Asos claims, increase sales capacity to £2.5bn. With a P/E of around 70, you’re paying for a big chunk of prospective sales growth in advance. Assuming you’ve done your homework first then this could be a buying opportunity.
Imagination Technologies
Shares of Imagination Technologies (LSE: IMG), which licenses its graphics and video intellectual property to Apple, are up 17% to 209p in 2014. The last few years have been bumpy ones for shareholders (the shares peaked at over 700p in 2012), but the market was cheered after the firm extended its multi-year deal with Apple.
Imagination secured new licences with over 50 partners in 2014, leading to gross profit increasing from £131m to £150m. Long-term, if the shares are to outperform, then Imagination’s technology needs even wider adoption. The group is bullish, stating: “We expect the demand for our graphics and video technologies to remain strong.” In addition to Apple, Imagination’s customers include Intel and LG.
Blinkx
The outlier, Blinkx (LSE: BLNX), has lost over 80% of its value this year, following devastating allegations in a blog by associate Harvard professor Ben Edelman. Edelman claimed that Blinkx used advertising software to artificially inflate revenues — refuted by the internet company — and in the time since it’s been revealed his research was paid for by US investment firms.
Blinkx’s revenue increased 25% to $247m in 2014, although pre-tax profit rose just 5% to $18m. The profit figure was weighed on by an $8m charge due to the integration of Rhythm NewMedia after its acquisition. Blinkx called Rhythm NewMedia, “the ultra-premium mobile technology platform, catalyzes growth of our mobile business”.
Findings from PwC have revealed people have a “profound aversion” to mobile advertising, so I’m not convinced this will add much — or any — value.
