5G Technology, a new generation wireless and mobile technology, is just around the corner. It is certainly a remarkable advancement of 4G in terms of speed and latency, which will improve several other areas, such as mobile communication, vehicle communication, smart cities, among others. Several companies are working in this direction to reap the benefits in future, and hence, it is imperative to invest timely in such stocks and be a part of the 5G revolution earlier. Vodafone has already launched 5G in over 100 cities in their 11 markets, while BT Group has been switching fixed networks to fibre from copper and launched 5G in May 2019 with its EE brand. As of now, the main four network of UK (EE, O2, Three, and Vodafone) have already launched 5G services and several MVNOs (mobile virtual network operators) rely on them. Considering the current scenario, we will discuss three players that will be benefitted with 5G deployment in the long run – Keywords Studios PLC, Gamma Communications PLC and IQE PLC below:
 
Keywords Studios PLC (LON: KWS) – Raised GBP 100 Million for Accretive Growth

Keywords Studios PLC is a FTSE AIM UK 50 Index listed Company, which is involved in the creative and technical services platform for the video games industry. It was established in 1998 and now operates in 21 countries.

Recent News
15^th May 2020: The Group completed the equity placing to raise nearly £100 million in gross proceeds by issuing 6,900,000 new ordinary shares.

Financial Highlights (for the year to 31 December 2019)
As on 16^th April 2020, the Group released its full-year results for FY19 and reported a strong revenue growth of 30.2% to €326.5 million as against €250.8 million in FY2018. In terms of percentage change against FY18, the Adjusted EBITDA increased 13.2%, Adjusted earnings per share surged 7.2% whereas total dividend per share declined by -64% in FY19. Regarding the liquidity, the Group had €82 million of funds available in cash balances and undrawn committed facilities, as at 31^st December 2019.

Share Price Performance

Daily Chart as on 5^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Keywords Studios PLC’s shares closed trading at GBX 1,826.00 on 5^th June 2020, which was down 0.81% against the last day closing price. Stock's 52 weeks High is GBX 1,880.00 and Low is GBX 1,069.00.

Valuation Methodology
 

Growth Catalysts
Following the near-term disruption, the Company is well-positioned with longstanding client relationships and diversifies portfolio of business to generate progressive returns in future. Moreover, the revolution of 5G will reap substantial rewards for gaming platforms in future.

Conclusion
In the current trading scenario, the Group entered the FY20 with the momentum of strong growth tailwinds, while the COVID-19 restrictions led to a rise in demand for online gaming. Hence, the trading in FY20 so far is in line with the market expectations. Despite the resilient position, the Group has not recommended a final dividend and considered prudent to preserve cash during the uncertain market environment. Overall, the Group has a resilient business model to withstand the prevailing economic turmoil and emerge even stronger in post COVID-19 era. Although the stock is lucrative to invest for the long run; however, considering the uncertainties in mind (especially when the management is slashing dividends and does not have clear guidance for full-year), we are not recommending to take a new position as of now and will monitor the market dynamics to take a fresh position at the right time and price.

Based on the decent growth prospects and the valuation methodology as discussed above, we have given a “Hold” recommendation at the closing price of GBX 1,826.00 (as on 5^th June 2020).

Gamma Communications PLC (LON: GAMA) – Robust Performance Keeping the Outlook Positive

Gamma Communications PLC is a UK based cloud communication services provider. It is catering the market by two major segments – Direct and Indirect, majorly in the UK and the Netherlands.

Recent News:
22^nd May 2020: The Company has raised £21.3 million in gross proceeds through an equity placing wherein the Citigroup Global Markets Limited acted as a sole bookrunner.

AGM Trading (as on 5^th June 2020)
As per the recent update, the Company witnessed strong growth in Q1 FY20, with positive momentum to carry forward in the second quarter. Despite the challenging market backdrop, the Group remains confident about the bright prospects of the Company in FY20 and beyond. Regarding the liquidity as at 31^st May 2020, the Company had £46.8 million in cash after the payment of £4.1 million for Exactive’s acquisition and £17.8 million for Voz’s acquisition.

Share Price Performance

Daily Chart as on 5^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

Gamma Communications PLC’s shares closed trading at GBX 1,250.00 on 5^th June 2020, which was up 1.63% against the last day closing price. Stock's 52 weeks High is GBX 1,495.00 and Low is GBX 910.00.

From the technical standpoint, its shares were trading well above its short-term support level of 50-days simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology
 

Growth Catalysts
Company’s business model has continued to be strong since 93% of its business is recurring and billed every month while further growth in Cloud PBX and SIP Trunks are expected. The Group is anticipating a significant disruption through the introduction of 5G services, which will reinforce their decision to switch to a light MVNO (mobile virtual network operator) model.

Conclusion
Despite the rapidly evolving uncertainties, the Group looks confident about the prospects in FY20 and beyond as they are expecting a robust interest in UCaaS and Cloud PBX products across all geographic markets. However, the Group believes that there will be a lag to return the business at pre COVID-19 level. Hence, the Company is closely monitoring the situation and taking necessary actions.

Based on the decent growth prospects and the valuation methodology, we have given a “Hold” recommendation at the closing price of GBX 1,250.00 (as on 5^th June 2020). Considering the uncertainties and market dynamics, we are currently maintaining the hold stance and will recommend fresh buying at the right time.
 
IQE PLC (LON: IQE) – Expecting Growth with Deployment of 5G Communication Infrastructure

IQE PLC is a FTSE AIM UK 50 index listed Company, which provides wafer services and advanced wafer products to the semiconductor industry. The Group is catering to upcoming 5G infrastructure deployments with its technologies and platforms.

Q1 2020 Trading Update (as on 24^th March 2020)
The Group reported that the trading was in line with expectations with high levels of production in March for 3 D Sensing VCSELs and Wireless products.

Financial Highlights (for the year to 31 December 2019)

(Source: Company Website)

As on 28^th April 2020, the Group provided its full-year results for FY19 and reported revenue of £140.0 million as against £156.3 million in FY18. Further, the Group reported a loss for the year at £35.1 million against the profit of £1.1 million in FY18.

Share Price Performance

Daily Chart as on 5^th June 2020, after the market closed (Source: Refinitiv, Thomson Reuters)

IQE PLC’ shares closed trading at GBX 45.18 on 5^th June 2020, which was up 8.66% against the last day closing price. Stock's 52 weeks High is GBX 79.62 and Low is GBX 18.86.

From the technical standpoint, its shares were trading well above its short-term support level of 20-days and 50-days simple moving average prices, which reflects an uptrend in the stock.

Valuation Methodology
 

Growth Catalysts
5G Technology will provide significant growth drivers for IQE’s GaAs technologies for mobile handsets and GaN (gallium nitride) technologies in mobile network infrastructure.

Conclusion
The Group experienced a challenging year in FY19 due to geopolitical tensions. Further, in 2020, headwinds are expected in the short run with the global spread of Coronavirus. Despite the uncertainties, trading in the Q1 FY20 was better than expectations and deployment of 5G communication infrastructure are showing signs of substantial growth. Whilst the Group is not materially impacted by COVID-19 in the current trading; however, the risk of a global economic downturn can adversely impact the demand in the near-term. The business appears to be resilient since it is geographically diversified, and its services are considered as critical manufacturing in several countries. Hence, it has the potential to emerge even stronger post COVID-19 scenario when opportunities arise.

Based on the decent prospects, which are supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the closing price of GBX 45.18 (as on 5^th June 2020) with lower double digit upside potential based 3.47x Peer Average NTM EV/Sales (approx.) on FY20E Sales (approx.).
 
*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 8^th June 2020).

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.