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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 that the strong performance in H120, which resulted in record first-half revenue, has continued into the second half. It has updated FY20 revenue guidance from at least £165m to over £170m, with adjusted EBIT guidance remaining at the mid-single-digit million level. We have updated our FY20 and FY21 forecasts accordingly, giving adjusted PBT upgrades of 34% and 10% for FY20 and FY21 respectively.
IQE |
Outperformance in both wireless and photonics |
Trading update |
Tech hardware & equipment |
25 November 2020 |
Share price performance
Business description
Next events
Analysts
IQE is a research client of Edison Investment Research Limited |
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IQE has announced that the strong performance in H120, which resulted in record first-half revenue, has continued into the second half. It has updated FY20 revenue guidance from at least £165m to over £170m, with adjusted EBIT guidance remaining at the mid-single-digit million level. We have updated our FY20 and FY21 forecasts accordingly, giving adjusted PBT upgrades of 34% and 10% for FY20 and FY21 respectively.
Year end |
Revenue (£m) |
EBIT* |
PBT* |
EPS |
DPS |
P/E |
12/18 |
156.3 |
16.0 |
14.0 |
1.38 |
0.0 |
45.7 |
12/19 |
140.0 |
(4.7) |
(7.0) |
(2.46) |
0.0 |
N/A |
12/20e |
170.6 |
6.1 |
4.2 |
0.38 |
0.0 |
163.7 |
12/21e |
183.3 |
13.1 |
12.0 |
1.16 |
0.0 |
54.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Wireless boosted by 5G roll out
In September we noted that IQE’s longstanding wireless customers had benefited from major design wins and investment in 5G infrastructure and handsets. This trend has continued. Earlier this month, Skyworks stated that it expected double-digit sequential revenue and earnings growth in the December quarter, driven by content gains and product ramps across multiple 5G-enabled smartphone platforms. Qorvo reported expanded module shipments across multiple tier-one smartphone OEMs and projected the robust end-market demand would continue into the December quarter.
Photonics benefiting from LiDAR
Production for IQE’s major vertical cavity surface emitting laser (VCSEL) customer, which we have previously inferred is involved in the Apple supply chain, has been consistently strong throughout the year so far. Demand is benefiting from the launch of the iPhone 12 Pro, which includes a world-facing LiDAR scanner to improve augmented reality (AR) experiences. The ability to integrate more accurate information about a handset user’s physical environment into the AR world will potentially catalyse the launch of ‘must-have’ AR apps. This would be beneficial for iPhone 12 Pro sales. It would also encourage Android handset manufacturers, several of which already use modest amounts of IQE’s VCSEL epitaxy, to add LiDAR to their devices.
Valuation: Recovered ground lost in March
IQE’s share price has more than recovered the ground lost during the panic selling in March. At current levels, IQE is trading at a discount to the mean EV/EBITDA multiples of the sample of companies engaged in manufacturing VCSEL epitaxy. Given IQE’s broader product portfolio, we believe it is reasonable for IQE to trade on multiples that are at the upper bound of this sample. However, we believe share price improvement will require greater visibility of how handset demand will be affected by any pandemic related recession in 2021 and whether the switch to 5G and the availability of as yet unknown ‘must-have’ AR apps will be sufficient motivation for cash-strapped consumers to justify upgrading their handsets.
Revisions to estimates
Exhibit 1: Estimate changes
FY19 |
FY20e |
FY21e |
|||||
Actual |
Old |
New |
% change |
Old |
New |
% change |
|
Revenue (£m) |
140.02 |
165.55 |
170.62 |
3.1 |
178.16 |
183.31 |
2.9 |
Adjusted PBT (£m) |
(7.02) |
3.15 |
4.21 |
33.9 |
10.89 |
11.99 |
10.2 |
Adjusted EPS (p) |
(2.46) |
0.28 |
0.38 |
39.1 |
1.05 |
1.16 |
10.2 |
Capitalised R&D (£m) |
9.97 |
6.00 |
6.00 |
0.0 |
6.00 |
6.00 |
0.0 |
Property, plant and equipment (£m) |
31.86 |
10.00 |
7.00 |
-30.0 |
10.00 |
10.00 |
0.0 |
Net (cash)/debt excluding finance leases at year end (£m) |
15.97 |
10.32 |
4.22 |
-59.1 |
(2.55) |
(7.17) |
180.6 |
Source: Edison Investment Research
We revise our estimates to reflect the following:
■
Upgraded FY20 revenue guidance with outperformance in both the wireless and photonics segments. We assume the higher than previously expected growth in H220 continues into FY21 and raise our revenue estimates for FY21 as well.
■
Lower levels of investment in capital equipment during FY20.
Research: TMT
Mondo TV continues to report production, distribution and licensing deals that will drive its future revenue and profits, supported by the €10.5m funding agreed with Atlas Special Opportunities. Q3 figures show broadly flat revenues for the year-to-date, with nine-month EBITDA margins up from 71.4% to 74.7%, reflecting reduced operating costs. We have pulled our full year revenue estimate back by 14% to reflect lower growth than we originally expected, translating to a reduction of just 4% at EBITDA level due to the margin uplift. The shares remain valued at a discount to peers.
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