Alphawave IP Group PLC (LON: AWE)

Alphawave IP Group PLC (LON: AWE) is an FTSE Main Market listed United Kingdom-based semiconductor IP company that designs and licenses high-performance configurable wired connectivity IP platforms. The key customers are semiconductor device suppliers, system-level original equipment manufacturers (OEMs) and outsourced semiconductor wafer foundries.

Growth Prospects

• New Royalty Wins: AWE had seen a multiple new royalty-bearing 400G/800G/1600G (1.6T) chiplet wins in Q4 FY21 with North American and Chinese customers. Moreover, it illustrated the importance of emerging semiconductor trends. WiseWave would support the Company’s product development efforts with regards to the leading-edge communication products at 400G/800G/1600G.
• Top-tier Customers: The Company has a broad portfolio of top-tier customers in North America and Asia, which includes five of the top eight semiconductor companies in the world as well as four global hyperscaler customers.
• Collaboration with Intel: The Company has entered into a partnership with Intel Foundry Services to focus on the highest-end connectivity solutions.

Key Risks 

• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.
• Other Potential Risk: There are certain potential risks that can impact the business, such as cybersecurity & data privacy, third-party reliance, leveraging disruptive technology, inability to understand customer needs, execution of product strategy, failure to identify the value of data and live services management.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Key Fundamental and Shareholders Statistics of Alphawave IP Group PLC.

Project AuroraIP Ltd is the most significant shareholder as it holds nearly 266.57 million shares as of 31 December 2021.   

Q4 FY21 Trading and Business Update (as of 17 January 2022)

• Strong Bookings: The Company had witnessed a record level of bookings with year-on-year growth of more than 225% to USD 244.7 million, of which USD 220.8 million are license & related.
• Bright Guidance: The strong pipeline led AWE to anticipate further revenue growth and profitability in 2022.
  

H1 FY21 Financial Highlights (for the six months ended 30 June 2021 as of 21 September 2021)

(Source: Company Filings)

• Robust Bookings: The Company had shown a robust growth of over 490% in the bookings to USD 196.1 million as of 30 June 2021.
• Top-Line Business: AWE’s top-line business grew by around 140% to USD 27.60 million during H1 FY21.
• Profitability: The adjusted EBITDA jumped more than 100% to USD 13.9 million with a margin of approximately 50% during H1 FY21.
  

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 04 March 2022 at 11:48 AM GMT, AWE’s shares were trading at GBX 151.20, down by around 6.95% against the previous day closing price. Stock 52-week High and Low were GBX 473.60 and GBX 149.20, respectively.

On a daily chart, the stock price is sustaining between the lower Bollinger band and middle Bollinger band. Hence, there could be an uptick in the stock price in the near term. Also, the 14-RSI of ~38.13 approaches oversold territory.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

AWE had exceeded the targets set at the IPO and surpassed the FY21 booking guidance provided in September 2021. Moreover, the multiple chiplet design wins during Q4 FY21 will support the robust revenue growth in 2022. Meanwhile, in terms of financial guidance, the Company had anticipated year-on-year revenue growth of approximately 125% during FY21. Adjacently, the adjusted EBITDA margins would be expected to increase to over 55% for FY21. Overall, the Company has increased revenue diversification across customers, end markets and regions.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the recent contract wins, solid bookings growth, impressive guidance, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Alphawave IP Group PLC at the current price of GBX 151.20 (as of 04 March 2022 at 11:48 AM GMT), with lower-double digit upside potential based on 20.87x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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