IQE

LN: IQE

£563.6m market cap

72.55p last close

IQE is the leading supplier of epitaxial compound semiconductor wafers globally. The principal applications include radio frequency semiconductors, devices for optical networks, vertical cavity lasers, infrared semiconductors and power electronics.

Investment summary

IQE’s post-close trading update shows that the short-term dip in production for one of its volume VCSEL programmes had a more severe impact on FY18 performance than management originally estimated. Although we are cutting our FY18 EPS estimate by 10.6%, we note the underperformance compared with management’s guidance given in November appears confined to FY18. Importantly, it does not affect the prospects for photonics growth in the medium term, which are based on multiple VCSEL opportunities. Our revised estimates give an indicative value of 73p/share.

Y/E Dec
Revenue (£m)
EBITDA (£m)
PBT (£m)
EPS (p)
P/E (x)
P/CF (x)
2016A 132.7 33.1 20.6 2.89 25.1 21.7
2017A 154.5 38.4 24.3 3.36 21.6 16.8
2018E 157.0 27.6 13.2 1.62 44.8 24.6
2019E 194.8 50.0 34.1 3.48 20.8 15.4
Last updated on 18/02/2019
Industry outlook

We believe that the short-term dip in VCSEL production relates to sales weakness for Apple iPhones and associated inventory destocking. Since management expects shipments to resume during Q119 it has reiterated FY19 and longer-term guidance. We note that IQE is involved in VCSEL ramp-ups for at least eight customers engaged in several market segments, providing alternative sources of photonics growth and reducing the exposure to weakness in product sales for any single OEM. The company is in the process of bringing additional photonics capacity into production at its new Newport foundry with 12 companies already actively qualifying this new volume production facility.

Last updated on 18/02/2019
Sector
TMT
Share price graph
Balance sheet
Forecast net cash (£m) 20.8
Forecast gearing ratio (%) N/A
Price performance
%
1m
3m
12m
Actual 8.9 27.7 (38.0)
Relative* 5.4 24.2 (37.0)
52-week high/low 149.0p/56.2p
*% relative to local index
Key management
Godfrey Ainsworth Chairman
Drew Nelson CEO
Tim Pullen CFO

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