Consider the following investor quiz question: a high-growth technology company in your portfolio has just posted a 2 per cent decline in adjusted operating profit, a 10 per cent drop in half-year cash generation, and an 18 per cent increase in leverage. Its chief executive maintains the company is poised to prosper from an industry inflection point, and that the outlook “has never looked better”. Do you a) sell out, or b) increase your stake?
When IQE (IQE) published its half-year numbers, the market initially gave the first answer. Perhaps fearful that demand for the semiconductor supplier’s much vaunted VCSEL (vertical-cavity surface-emitting laser) wafers was slower than expected, or that interim figures were only given a gloss by the post-referendum devaluation of sterling, investors ran for the exit. The stock, up threefold already in 2017, duly fell 10 per cent.
By the end of the day's trading session, investors had scratched out their original response and doubled down, pushing the stock 6 per cent higher on chief executive Drew Nelson’s assertion that capacity, demand, revenue diversity and growth will all rocket in 2018. Peel Hunt chimed in, flagging another possible upgrade to earnings forecasts, although its analysts still expect full-year adjusted pre-tax profit of £23m and EPS of 3.3p this year, against £20.6m and 3p in 2016.
| IQE (IQE) | ||||
| ORD PRICE: | 146p | MARKET VALUE: | £1.0bn | |
| TOUCH: | 145.8-146.3p | 12-MONTH HIGH: | 150p | LOW: 26p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 59 | |
| NET ASSET VALUE: | 29.4p* | NET DEBT: | 21% | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 63.0 | 10.5 | 1.49 | nil |
| 2017 | 70.4 | 6.8 | 1.07 | nil |
| % change | +12 | -35 | -28 | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| *Includes intangible assets of £105.9m, or 16.1p a share. | ||||
