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Last close As at 02/06/2023
-33.10
▲ 3.95 (13.55%)
Market capitalisation
266m
Research: TMT
IQE has announced its intention to raise up to £95.1m (gross) through a placing of up to 67.9m new shares at 140p/share. The funds will enable IQE to expand capacity to support multiple VCSEL volume ramp-ups from FY19 onwards. We expect the share issue to be earnings neutral in the near term, and are encouraged by this signal of confidence from management as it prepares for the next step change in output.
IQE |
Funds raised to support VCSEL ramp-up |
Placing |
Tech hardware & equipment |
14 November 2017 |
Share price performance
Business description
Next events
Analysts
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IQE has announced its intention to raise up to £95.1m (gross) through a placing of up to 67.9m new shares at 140p/share. The funds will enable IQE to expand capacity to support multiple VCSEL volume ramp-ups from FY19 onwards. We expect the share issue to be earnings neutral in the near term, and are encouraged by this signal of confidence from management as it prepares for the next step change in output.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/15 |
114.0 |
17.6 |
2.60 |
0.0 |
65.4 |
N/A |
12/16 |
132.7 |
20.6 |
3.00 |
0.0 |
56.7 |
N/A |
12/17e |
145.3 |
23.7 |
3.26 |
0.0 |
52.1 |
N/A |
12/18e |
160.3 |
28.3 |
3.57 |
0.0 |
47.6 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Getting ready for multiple VCSEL ramp-ups
The funds raised will be used to purchase an additional 40-60 new MOCVD reactors over the next three to five years (IQE currently has around one hundred, but these are used for a different mix of epitaxies). The reactors will be used to make epitaxy for multiple VCSEL programmes as they move into volume production. Towards the end of H117 IQE began to deliver volume VCSEL epitaxy, which we infer was for the new iPhone X. It is currently working on a range of programmes that have potential to become volume contracts in future. Some are for other phone manufacturers wanting to emulate the capabilities of the new iPhone. Some are for other consumer applications including hand and body tracking, automotive applications, data comms and industrial applications such as heating, InP (indium phosphide) wafers for high-speed data networks and GaN (gallium nitride) wafers for radio frequency and power applications.
Share issue earnings neutral
We have updated our estimates to reflect the proposed placing. Since there is a 12-month lead time for MOCVD reactors, the first units funded by the placing will not be delivered and start producing epitaxy until FY19, so there is no change to our near-term revenue and earnings estimates. The near-term dilutive impact of the new shares, which represent up to 9.9% of the existing shares in issue, is offset by a reduction in finance charges; there should be a positive impact on EPS from FY19 onwards as new capacity comes online. We have raised our capex estimates, which include capitalised R&D and equipment, for both FY17 and FY18.
Valuation: Earnings upgrades priced in
The shares have performed extremely well in recent months, rising more than 4x from 29.5p a year ago, and are now trading on multiples that suggest that upgrades in earnings are already priced in. While noting that there remains uncertainty regarding Q417 deliveries, management recognises potential for FY17 earnings to exceed current expectations. Our September outlook note explores the impact of potentially faster rates of VCSEL roll-out on FY17 and FY18 EPS.
Exhibit 1: Financial summary
£'000s |
2015 |
2016 |
2017e |
2018e |
|
Year End 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
|
PROFIT & LOSS |
|||||
Revenue |
|
114,024 |
132,707 |
145,346 |
160,303 |
Cost of Sales (Inc D&A + SBP) |
(81,585) |
(96,292) |
(105,303) |
(115,664) |
|
Gross Profit |
32,439 |
36,415 |
40,043 |
44,639 |
|
EBITDA |
|
29,001 |
31,730 |
35,462 |
40,287 |
Depreciation and Amortisation |
(10,024) |
(9,611) |
(10,000) |
(12,300) |
|
Operating Profit (before amort. and except.) |
18,977 |
22,119 |
25,462 |
27,987 |
|
Acquired Intangible Amortisation |
(1,208) |
(1,327) |
(1,327) |
(1,327) |
|
Exceptionals |
5,398 |
1,915 |
0 |
0 |
|
Share based payments |
(2,001) |
(2,042) |
(3,000) |
(3,000) |
|
Operating Profit |
21,166 |
20,665 |
21,135 |
23,660 |
|
Underlying interest |
(1,403) |
(1,489) |
(1,725) |
300 |
|
Exceptionals |
(387) |
(144) |
0 |
0 |
|
Profit Before Tax (norm) |
|
17,574 |
20,630 |
23,737 |
28,287 |
Profit Before Tax (FRS 3) |
|
19,376 |
19,032 |
19,410 |
23,960 |
Tax |
773 |
408 |
500 |
500 |
|
Profit After Tax (norm) |
18,066 |
21,440 |
23,737 |
28,287 |
|
Profit After Tax (FRS 3) |
20,149 |
19,440 |
19,910 |
24,460 |
|
Average Number of Shares Outstanding (m) |
662.6 |
671.5 |
689.8 |
754.8 |
|
EPS - normalised (p) |
|
2.60 |
3.00 |
3.26 |
3.57 |
EPS - (IFRS) (p) |
|
3.00 |
2.87 |
2.89 |
3.24 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
|
BALANCE SHEET |
|||||
Fixed Assets |
|
174,207 |
215,154 |
238,827 |
260,200 |
Intangible Assets |
86,843 |
103,972 |
113,645 |
116,518 |
|
Tangible Assets |
65,154 |
85,001 |
99,001 |
117,501 |
|
Other |
22,210 |
26,181 |
26,181 |
26,181 |
|
Current Assets |
|
48,909 |
64,323 |
113,275 |
119,748 |
Stocks |
21,215 |
28,498 |
34,214 |
38,755 |
|
Debtors |
23,050 |
30,868 |
34,278 |
39,163 |
|
Cash |
4,644 |
4,957 |
44,784 |
41,830 |
|
Current Liabilities |
|
(48,050) |
(46,012) |
(40,921) |
(42,645) |
Creditors |
(44,809) |
(38,360) |
(40,921) |
(42,645) |
|
Short term borrowings |
(3,241) |
(7,652) |
0 |
0 |
|
Long Term Liabilities |
|
(28,032) |
(39,021) |
(2,167) |
(2,167) |
Long term borrowings |
(24,626) |
(36,854) |
0 |
0 |
|
Other long term liabilities |
(3,406) |
(2,167) |
(2,167) |
(2,167) |
|
Net Assets |
|
147,034 |
194,444 |
309,015 |
335,136 |
CASH FLOW |
|||||
Operating Cash Flow |
|
20,971 |
22,463 |
28,897 |
32,585 |
Net Interest |
(1,403) |
(1,489) |
(1,725) |
300 |
|
Tax |
(459) |
(839) |
(839) |
(839) |
|
Capex |
(10,002) |
(19,060) |
(35,000) |
(35,000) |
|
Acquisitions/disposals |
0 |
(11,250) |
0 |
0 |
|
Financing |
544 |
578 |
93,000 |
0 |
|
Dividends |
0 |
0 |
0 |
0 |
|
Net Cash Flow |
9,651 |
(9,597) |
84,333 |
(2,954) |
|
Opening net debt/(cash) |
|
31,251 |
23,223 |
39,549 |
(44,784) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
|
Other |
(1,623) |
(6,729) |
0 |
0 |
|
Closing net debt/(cash) |
|
23,223 |
39,549 |
(44,784) |
(41,830) |
Source: Company accounts, Edison Investment Research
|
|
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