The short-sellers that dammed IQE’s (IQE) joint ventures in the UK and Singapore as vehicles for hiding start-up losses, will no doubt be relieved to see that sales from those partnerships have fallen to contribute just 1 per cent of total revenue. In 2017, licence revenues fell 72 per cent to £1.9m as upfront fees diminished. But as licence income has a 100 per cent margin, its decline damaged gross margins. This issue, together with an increase in product investment and negative foreign exchange movements, sent operating profit down 14 per cent to £17m.
But there’s no doubt IQE made good progress in 2017. The launch of a consumer product that incorporates the group’s VCSEL wafers (likely to be the iPhone X) sent revenues in its photonics business up 109 per cent to £47.6m. Confidence about the ongoing demand for these products spurred management into raising £95m in November to fund a capacity expansion programme this year. Brokers at Peel Hunt expect pre-tax profit and EPS of £29.7m and 3.8p in 2018 as a result (from £23.4m and 3.3p in 2017).
And yet, it is worth noting that demand for the group’s wireless products – which contribute 60 per cent to the top line – dwindled in 2017, and the infrared division still only contributes 8 per cent. To maintain the revenue growth achieved in 2017, IQE is therefore reliant on its photonics business.
| IQE (IQE) | ||||
| ORD PRICE: | 140p | MARKET VALUE: | £1.06bn | |
| TOUCH: | 140-141p | 12-MONTH HIGH: | 182p | LOW: 46p |
| DIVIDEND YIELD: | nil | PE RATIO: | 67 | |
| NET ASSET VALUE: | 38p* | NET CASH: | £45.6m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2013 | 127 | 5.2 | 0.9 | nil |
| 2014 | 112 | 5.2 | 0.3 | nil |
| 2015 | 114 | 19.4 | 3.0 | nil |
| 2016 | 133 | 18.4 | 2.7 | nil |
| 2017 | 154 | 14.9 | 2.1 | nil |
| % change | +16 | -19 | -21 | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £109m, or 14p a share | ||||
