By Paul Scott's sidekick Graham29 Aug 2018 22:48
TODAYS STOCKOPEDIA REPORT
IQE (LON:IQE)
Share price: 102.5p (-1%)
No. of shares: 761 million
Market cap: £780 million
H1 2018 Results
Graham here again, taking a look at this heavily-shorted manufacturer of semiconductor wafers. Disclosed short positions persist at 11% of shares outstanding.
(I don't mention this because short-sellers are necessarily correct, but because it means there must be some good arguments in favour of shorting it.)
Results:
revenue from wafers up 5.4%. Held back by currency headwind of c. 10%.
gross profit margin down by 1.4 percentage points.
adjusted PBT down 21% to £7.6 million (after £1 million of adjustments).
the company suffers a tax charge instead of receiving a tax credit, so reported net income is down 50% to £4.2 million.
Balance sheet - net cash of £40.6 million. It raised almost £100 million in November.
Operations - 7 new reactors so far this year in Newport. Another 3 scheduled during the rest of H2.
CEO comment. The company also provides a second version of adjusted PBT, with another £3.5 million of adjusted expenses, including a currency headwind of £2 million. If you're happy to look at it that way, adjusted PBT is up.
In relation to the additional expenses taken on during the period, the CEO says:
Although the costs of these investments have impacted first half profitability, we are confident they will be pivotal in delivering strong increases in revenue, margin expansion and profitability as 3D sensing is widely adopted in global mobile platforms and other large volume applications.”
Joint ventures
IQE's Singapore and Cardiff joint ventures were the subject of bear speculation earlier this year. The final footnote of today's report details the related party transactions which took place over the last six months with them.
Once again, I don't see any smoking gun as far as these JVs are concerned. The movement in cash is a bit circular (IQE making purchases from the Cardiff JV and also recharging costs to it), but you'd need some very detailed, specific info to prove that something untoward was going on.
My view
I'm impressed by the 55% market share the company claims to have in the wireless market. It's now moving to produce for Android manufacturers - encouraging. It says it's positioned strongly for 3D sensing applications - also very interesting.
Regular readers will know that I love to see big ROCE/ROE numbers. They are associated with growth and free cash flow (because you need to reinvest less of your earnings to get the same result).
IQE has a mixed track record on this front, for reasons we've discussed before (it's in a heavy industry and has had to do a lot of capex spending).
Maybe 3D sensing will be the opportunity that sparks improved returns for shareholders? I'm neutral.
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