Iqe Share Discussion Threads

[lucas5950] 22/3/2017 14:48

My last exit was @54p. Do you think the profit IQE has generated justifies the current SP, the 150%+ increase?

[adventurous] 22/3/2017 14:39

poombear - I thought it was too obvious to mention (its all in the fy15 & fy16 annual report) - although Sweenoid's been highlighting Photonics for quite some time!!

[twatcher] 22/3/2017 14:29

^^^^^^^^^^
confused

Your post seem to be justifying your case for selling weeks ago but the share price is still HIGHER than it was anytime "weeks ago" ???

[lucas5950] 22/3/2017 14:23

Still rambling rubbish, what if...etc etc.Underlying profit was disappointing let's be honest.SP has been ramped up constantly and now reality is hitting. I said this weeks ago and it's why I sold. Great run up and bank the profits at the top.If things change, I will definitely be back in. Until then, out.

[rogerrail] 22/3/2017 14:06

poombear

great spot,

in this respect it is also important to re-emphasise the following statement

"Capital investment of GBP19.1m represents a GBP9.1m increase over the
prior year to address growth opportunities, principally in photonics,
GaN and cREO. Investment in capital equipment was up GBP7.1m, and
investment in intangibles was up GBP1.9m".

[yump] 22/3/2017 12:41

That is a big difference. Some pencilling in to do with some assumptions now.

[poombear] 22/3/2017 12:36

It's worth noting the big difference in profit margin between Wireless and Photonic.

Wireless £7.9m adj profit from £91m sales

Photonics £6.8m adj profit from £22m sales

Going forwards continued growth in Photonics will greatly improve profit margin.

[poombear] 22/3/2017 12:01

SH if it creates a monopoly because it's the only solution on the market, licencing the IP would generate a lot of very high margin revenue. It depends on how much of a game changer the solution is.

[yump] 22/3/2017 11:56

That's probably the most balanced anything I've seen on here.

I'd love to find out somehow how heavily geared IQE are to increases in photonics output, but I guess that's internal management info.

[sheep_herder] 22/3/2017 11:44

poombear - why would they not be able to cope with the demand? cREO is their holy grail - I very much doubt they will let anyone else near it.

[bestace] 22/3/2017 11:38

The fact that some people on here were disappointed with the results even though they exceeded broker forecasts says it all - expectations got too far ahead of reality, hence the sell off.

I agree with most of toptrump1's post; in particular wireless seems to have surpassed even management's expectations given they had previously flagged mid single digit growth. However I disagree on a few points:

Firstly on photonics growth. I'm not sure where £27m expectations for photonics came from, but if genuine it underlines the point about expectations being way too high. All the company told us in December was "Photonics continues to be the fastest growing business segment, enjoying strong double digit growth year on year."

In the interims they also used the phrase "strong double digit growth" where photonics had grown by 45% in H1. A reasonable inference would have been to apply the same 45% figure to the H2 2015 figures to get a forecast H2 2016 of £12.5m, giving FY16 revenue of £23.2m.

As it turns out that wasn't very far away from the actual H2 of £12.1m and FY16 of £22.8m.

Maybe that's post hoc rationalisation, but to get to £27m would have required an increase of 69% YoY which may literally be consistent with "double digit growth", but would have required an acceleration in H2 to £16.3m, some 89% higher than H2 2015. Growth accelerating to that degree would surely have been described differently in the December trading update.

Secondly on broker's forecasts. 12 months ago I reckon the brokers had 2.5p EPS pencilled in, not 3p. Prior to the December trading update they had 2.7p, which increased further to 2.9p post trading update.

That's an increase of 16% over the last 12 months, still much less than the increase in share price over the same period, but then again their peers and the wider markets were re-rating upwards so to an extent it is understandable why the share price would appreciate by more than the fundamentals might have implied.

Looking at those broker forecasts, and reading through the Edison notes, I think they were far more grounded in reality than some private investors.

Edison said in September, when the price was 28p: "IQE’s rating still remains undemanding on a fundamental basis and relative to its peers, giving scope for further share price appreciation", then in November "Our indicative valuation range of 40-45p puts IQE on multiples that are close to the mean of our sample of listed peers", then in December "Our indicative valuation range of 45-49p... places IQE on multiples that are close to the mean of our sample."

Now they are saying "... the shares look fairly priced at current levels. However, given the potential for upward earnings revisions based on commercial ramp-up of photonics projects, this higher than average rating does not seem totally unreasonable to us. We see the scope for upward price movement if greater clarity regarding the rate of volume ramp-up of photonics programmes results in estimate upgrades."

That seems reasonable to me - mid to longer term price appreciation if the chips fall their way, but no reason to spike higher in the short term.

[yump] 22/3/2017 11:29

poombear
I haven't a clue where 27m for Photonics came from.

Sheep_Herder
That is one of the reasons why this business is much more complex that people would like to think.

Its an ongoing battle between cost of capacity and utilisation rate, to get a profit before the next set of modifications is needed.

Best case: the capacity built will cope with variations and demand for several years of sales. Worst case: sales don't reach a level that gives significant contribution to overheads and costs.

Even making creme eggs on a single plant years ago had the same risks, that the product wouldn't sell enough to payback.

This is way more complex. Creme Eggs always made the same way and not subject to price fluctuation. Not the same for IQE's products.

[poombear] 22/3/2017 11:29

On CREO, does anyone have a view on what the business model would be for this? Would they licence the tech as I doubt IQE would be able to meet the demand that would be generated if it proves to be successful in eliminating the parasitic channel, that is holding back GaN on Silicon products?

[poombear] 22/3/2017 11:23

The Edison report gives a decent breakdown on Capex. Some of which I believe would be to a degree one off, unless they have to ramp up even further this year due to ever increasing demand for their products.

"However, IQE still consumed cash. Net debt increased by £16.3m to £39.5m (20% gearing). The main causes of this were: a £4.9m increase in working capital relating to the intensification in photonics activity and weak sterling; £11.3m final tranche of deferred consideration for Kopin; £6.3m in capitalised development expenditure (higher than £5.0m in FY15 because of the levels of photonic and other development activity); and £11.0m capex (£3.8m in FY15) as IQE invested in equipment ahead of the anticipated ramp-up in photonics volumes."

[sheep_herder] 22/3/2017 11:10

People seem to talk about the capex as if it's a one off. This is a wafer manufacturer - capex will only ever rise as they invest in new technology and/or capacity.

[boboty] 22/3/2017 11:07

Top trump your figures seem to be slightly off. From the results published yesterday cash generated from operations increased by 7.1% not 5 and further if you use the adjusted eps of 3 pence then with a pe of 15 you get a share price of 45 or 60pence using a pe of 20. Remember this is all historic - how it was last year and with current growth and an assurance they are on track I think a share price of 60 would be fairer. It seems most of the cash generated last year (over 20 million) has been spent on capital items to increase production capacity. I hope this is related to the tier 1 OEM discussions the rns refers to. Do you think that might be apple - I hope so.

[yump] 22/3/2017 10:44

(re:analysts)
The other half are IR tax inspectors where you have to run a week's training session just so they can understand your business. "Someone clicks and we make money". What ??!!

[lucas5950] 22/3/2017 10:44

Well it's been a decent run and many of us have made some good money i bet.

I had another look over the results and there honestly is nothing to get excited about.
Was really hoping for IQE to produce more profit then it did.
So for me, it was disappointing, long term this stock may be great, many have held this for years watching it climb and fall - i'd rather not have my money tide up here for years so glad i'm already out.

[big7ime] 22/3/2017 10:37

Well said bestace
Rivaldo the analyst got it wrong didn't he, so why believe him now after the rise? A bit like a chartist that sees a rise over past 9mths and thinks it must be good indication for the future. I'd much rather had invested at 19p (which I did) and now have option to sell
Take analyst targets with a pinch of salt, even some hilarity and you won't lose money following them. Most are fresh out of uni and have no real business sense

[bestace] 22/3/2017 09:58

A dividend would show poor capital allocation IMO when net debt has just risen by 70% and they've just spent a tonne of money on capex. At least wait until that capex is starting to show a return, and the direction of travel on the debt is going down, before thinking about a dividend.

[rivaldo] 22/3/2017 09:32

Agreed Lurki0, a dividend would be nice, but imo is unnecessary except perhaps as a lever/sop to enable dividend-hunting institutions and funds to invest in IQE. If a tiny dividend would enable this to happen, then perhaps it's worth it.

Otherwise I would much rather IQE reinvest their profits to meet the scaling up of the business required for all the new technologies starting to coming on stream.

Anyway, it's encouraging to see once-sceptical analysts now being so positive about IQE.

[lucas5950] 22/3/2017 09:13

Toptrump - Thanks for your post, I think I'll stay out now. I believe a correction is coming.

[lurki0] 22/3/2017 09:10

In view of the volumes I imagine many of us still hold a dividend would be lovely. However such talk from analysts eager to see their own price predictions become reality should be regarded with a sackful of scepticism. Nobody should seriously factor in the possibility of a dividend when investing here -at least not for the next two years I would think.

[yump] 22/3/2017 09:07

OK

Here's a challenge:

Someone pick apart toptrump1's points then, one at a time, properly, leaving aside for the moment the amazing opportunities that exist for IQE, despite the fact that the forecasts haven't included them yet.

Its simply not credible for brokers to have price targets giving p/e's approaching 20, when they themselves have only posted forecasts of 5-12% growth.

[rivaldo] 22/3/2017 08:45

Peel Hunt believe a dividend may be on the cards.....

"Market Talk:

Peel Hunt Lifts IQE Target After Earnings

0702 GMT Peel Hunt analyst Andrew Shepherd-Barron lifts his target on semiconductor materials supplier IQE (IQE.LN) to 60p from 35p following its full-year results Tuesday, noting a reversal in the decline in wireless and a big increase in photonics revenue. IQE, whose materials are found in components for smartphones, lasers and light sensors, is also benefiting from cost cutting efforts and has sound finances, says Shepherd-Barron, who also lifts his rating to buy from hold and believes a dividend reinstatement could be in the cards."