Today Ill be discussing the outlook for semiconductor and software design company ARM Holdings (LSE: ARM), and plastic packaging business RPC Group (LSE: RPC). Both of these companies have recently announced acquisitions but does that make them more attractive as investments?
Smart vision of the future
Last month chip designer ARM Holdings acquired imaging technology products company Apical Ltd for $350m. Apical is one of the UKs fastest-growing tech firms, specialising in the field of imaging and embedded computer vision technology. Itstech is being used in more than 1.5bn smartphones and around 300m other consumer electronics devices, digital cameras and tablets.
Cambridge-based ARM said the acquisition accelerates its ecosystems growth into new markets such as connected vehicles, robotics, smart cities, security systems, industrial and retail applications, and devices connected to the so-called Internet of Things. Apicals technology would also extend ARMs product portfolio in existing markets such as smartphones and cameras. Shares in FTSE 100 firm ARM have underperformed over the last 12months, down 12% from a year ago, butperhaps this could be an opportunity to buy into ARMs growth story?
Brokers are certainly optimistic about the firms prospects, with Exane BNP Paribas recently reiterating a13 target price on the stock, a significant premium to the current price of around 9.75. ARM trades on a forward price-to-earnings ratio of 28 for the current year, falling to 24 for the year to December 2017. With the shares trading on multiples of between 43 and 75 over the last five years, I believe this could be a great time to snap them upat a very reasonable price.
The complete package
It seems that ARM isnt the only firm thats been splashing the cash recently, as plastic packaging company RPC Group last week announced that it has agreed to buy British Polythene Industries for 261m. FTSE 250 firmRPC will pay 470p per share in cash and 0.60141 of new RPC shares for British Polythene, valuing the Scottish Small Cap firm at 261m. The deal works out at around 940p per British Polythene share, a 30% premium to the stocks closing price of 725p prior to the announcement of the deal, when the companys market value stood at 198.9m.
Rushden-based RPC said the deal will provide it with exposure to an adjacent polymer market and increase the range of polymer conversion technologies in its portfolio. Its in line with its Vision 2020 strategic plan, which includes a push to drive strategic consolidation in RPCs European markets.
Our friends in the City are expecting RPCs growth to continue at a healthy rate, with a 24% rise in earnings predicted for the year to March 2017, followed by a further improvement of 10% in fiscal 2018. This would leave the shares trading on 15 times forecast earnings for FY2018, which in my opinion leaves room for upward movement, provided growth forecasts are realised.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and RPC Group. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
