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Last close As at 02/06/2023
-33.10
▲ 3.95 (13.55%)
Market capitalisation
266m
Research: TMT
IQE’s post-H118 close trading update notes the group continues to trade in line with current market expectations. Importantly, it comments on a significant increase in photonics revenues from product qualifications, underpinning management’s expectation of a photonics ramp-up in H218 and FY19. We raise our revenue estimates slightly but otherwise leave our forecasts unchanged.
IQE |
Six more VCSEL projects in mass production |
H118 trading update |
Tech hardware & equipment |
7 August 2018 |
Share price performance
Business description
Next events
Analysts
IQE is a research client of Edison Investment Research Limited |
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IQE’s post-H118 close trading update notes the group continues to trade in line with current market expectations. Importantly, it comments on a significant increase in photonics revenues from product qualifications, underpinning management’s expectation of a photonics ramp-up in H218 and FY19. We raise our revenue estimates slightly but otherwise leave our forecasts unchanged.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16** |
132.7 |
20.6 |
2.89 |
0.0 |
36.3 |
N/A |
12/17 |
154.5 |
24.3 |
3.36 |
0.0 |
31.2 |
N/A |
12/18e |
178.1 |
32.8 |
3.62 |
0.0 |
29.0 |
N/A |
12/19e |
207.1 |
42.3 |
4.60 |
0.0 |
22.8 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Restated.
Revenue growth held back by currency headwinds
IQE expects H118 revenues to be c £73m compared with £70m H117, as double-digit sales growth on a constant currency basis in each of the three primary markets was offset by a 9.5% currency headwind. The segmental split was distorted by inventory management factors. During both H117 and H217, significant production capacity was allocated to the VSCEL ramp-up for a 3D sensing application. During H118, sales to the chip manufacturer servicing this application were similar to H117, as the supply chain absorbed inventory, enabling the group to replenish wireless inventory channels and start work on a significant number of VCSEL production qualifications. On a constant currency basis, wireless revenues grew by almost 11% year-on-year, photonics by 30% and infra-red by c 11%.
H218 photonics ramp-up already underway
The recent work on VCSEL product qualifications has resulted in IQE being in mass production with six VCSEL chip manufacturers and in final qualification stages with another six, with volumes already ramping up in H218. These are for mobile, sensing, automotive and datacom applications. We leave our estimates broadly unchanged, raising our FY18 revenue estimate from £174.9m to £178.1m and our FY19 revenue estimate from £203.8m to £207.1m.
Valuation: Discount to other VCSEL epitaxy providers
The share price has declined from the peak of 178.75p in November 2017. A comparison of IQE’s FY18 P/E multiple against those of listed peers shows it trading at a premium (29.0x vs 23.2x). However, if we restrict the comparison to the three listed companies offering epitaxy for VCSELs (IntelliEPI, LandMark Optoelectronics and Visual Photonics), then IQE is trading close to the mean (27.8x vs 26.8x) and below Landmark (28.2x) and Visual Photonics (33.3x) despite being in a stronger market position than both. Taking this approach, the shares look fairly priced at current levels despite modelling fairly unambitious photonics revenue growth (40%) in our estimates.
Exhibit 1: Financial summary
£'000s |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
restated |
|||||
Revenue |
|
|
132,707 |
154,480 |
178,078 |
207,095 |
Cost of Sales (Inc D&A + SBP) |
(98,538) |
(115,857) |
(126,611) |
(145,297) |
||
Gross Profit |
34,169 |
38,623 |
51,467 |
61,798 |
||
EBITDA |
|
|
33,057 |
38,384 |
47,910 |
58,959 |
Depreciation and Amortisation |
(10,938) |
(12,025) |
(15,166) |
(16,699) |
||
Operating Profit (before amort. and except.) |
|
22,119 |
26,359 |
32,745 |
42,260 |
|
Acquired Intangible Amortisation |
(1,374) |
(1,429) |
(1,429) |
(1,429) |
||
Exceptionals |
1,962 |
(385) |
0 |
0 |
||
Share based payments |
(2,881) |
(7,526) |
(7,526) |
(7,526) |
||
Operating Profit |
19,826 |
17,019 |
23,790 |
33,305 |
||
Underlying interest |
(1,463) |
(2,099) |
100 |
0 |
||
Exceptionals |
(26) |
80 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
20,630 |
24,340 |
32,845 |
42,260 |
Profit Before Tax (FRS 3) |
|
|
18,363 |
14,920 |
23,890 |
33,305 |
Tax |
(340) |
(435) |
(3,583) |
(4,996) |
||
Profit After Tax (norm) |
20,692 |
24,823 |
29,261 |
37,265 |
||
Profit After Tax (FRS 3) |
18,023 |
14,485 |
20,306 |
28,310 |
||
Average Number of Shares Outstanding (m) |
671.5 |
689.5 |
758.7 |
760.8 |
||
EPS - normalised (p) |
|
|
2.89 |
3.36 |
3.62 |
4.60 |
EPS - (IFRS) (p) |
|
|
2.66 |
2.09 |
2.66 |
3.71 |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
214,043 |
224,836 |
243,241 |
253,114 |
Intangible Assets |
103,972 |
108,513 |
108,418 |
106,791 |
||
Tangible Assets |
85,001 |
90,875 |
109,375 |
120,875 |
||
Other |
25,070 |
25,448 |
25,448 |
25,448 |
||
Current Assets |
|
|
64,323 |
111,559 |
127,100 |
164,512 |
Stocks |
28,498 |
33,707 |
40,267 |
46,865 |
||
Debtors |
30,868 |
32,240 |
39,297 |
50,253 |
||
Cash |
4,957 |
45,612 |
47,536 |
67,394 |
||
Other |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(51,522) |
(44,916) |
(48,447) |
(56,100) |
Creditors |
(43,870) |
(44,916) |
(48,447) |
(56,100) |
||
Short term borrowings |
(7,652) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(39,021) |
(666) |
(666) |
(666) |
Long term borrowings |
(36,854) |
0 |
0 |
0 |
||
Other long term liabilities |
(2,167) |
(666) |
(666) |
(666) |
||
Net Assets |
|
|
187,823 |
290,813 |
321,229 |
360,860 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
22,463 |
29,717 |
37,824 |
49,057 |
Net Interest |
(1,489) |
(2,125) |
100 |
0 |
||
Tax |
(839) |
(5,844) |
(1,000) |
(1,200) |
||
Capex |
(19,060) |
(28,190) |
(35,000) |
(28,000) |
||
Acquisitions/disposals |
(11,250) |
0 |
0 |
0 |
||
Financing |
578 |
94,912 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(9,597) |
88,470 |
1,924 |
19,857 |
||
Opening net debt/(cash) |
|
|
23,223 |
39,549 |
(45,612) |
(47,536) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
(6,729) |
(3,309) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
39,549 |
(45,612) |
(47,536) |
(67,394) |
Source: Company data, Edison Investment Research
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Research: TMT
Keywords’s trading update indicated continued robust performance with y-o-y revenue and PBT growth of 72% and 66% respectively, despite the currency headwind from a weaker dollar. With the integration of acquisitions going well, a robust demand environment and a stronger dollar, the company looks set for a strong H2 and is well placed to meet our (unchanged) FY estimates.
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