Reported figures at IQE (IQE), which makes custom wafers used in microchips to enable wireless connectivity and other features, don't tell the whole story. Adjust for acquisition costs and its pre-tax profits rose 51 per cent last year. That was despite high-end smartphone sales slowing last year, prompting several of IQE's microchip-making customers to destock.
IQE also diversified its business, hedging against the risk that its customers miss out on a key contract with Apple (US: APPL) and Samsung. It bought competitor Kopin Wireless, whose customers include Skyworks, the dominant wireless solutions provider. It also secured a contract with electronics giant Philips (NL: PHIA) for VCSEL, IQE's microchip laser technology.
The strategy has improved IQE's exposure to a "truly exciting range of end markets", says chief executive Drew Nelson. Faster, more powerful chips for next generation phones will require its wafers, as will the connected devices that make up the 'Internet of Things'. And its phototonic technology has gained traction in the infrared, solar and lighting markets - indeed, even among cosmetic companies for laser hair removal.
But change hasn't been cheap. IQE's net debt more than doubled to £34.4m, largely reflecting the cost of buying Kopin. Sales, general and administrative costs climbed 26 per cent to £15.6m, reflecting integration expenses. Analysts at broker N+1 Singer expect adjusted pre-tax profits of £16.7m this year, giving EPS of 2.5p, up from 1.4p last year.
| IQE (IQE) | ||||
|---|---|---|---|---|
| ORD PRICE: | 23p | MARKET VALUE: | £151m | |
| TOUCH: | 23-24p | 12-MONTH HIGH: | 32p | LOW: 18p |
| DIVIDEND YIELD: | nil | PE RATIO: | 25 | |
| NET ASSET VALUE: | 17p* | NET DEBT: | 31% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 53 | 2.1 | 0.5 | nil |
| 2010 | 73 | 6.3 | 1.6 | nil |
| 2011 | 75 | 6.9 | 1.6 | nil |
| 2012 | 88 | 6.1 | 1.2 | nil |
| 2013 | 127 | 5.2 | 0.9 | nil |
| % change | +44 | -15 | -20 | - |
*Includes intangible assets of £75.9m, or 11.7p a share | ||||
