IQE PLC (LSE: IQE)

IQE PLC (LSE: IQE) is an FTSE AIM UK 50 Index-listed supplier of advanced compound semiconductor wafers and materials solutions. It is engaged in the development, manufacturing, and sale of advanced semiconductor materials. It operates through three segments: Wireless, Photonics and CMOSS++.

Investment Rationale – Watch at GBX 20.57

• Improved Revenue: The group reported an increase of approx. 9% in the total revenue to GBP 167.5 mn in FY22 as compared to the revenue of GBP 154.1 mn in FY21, but on a constant currency basis the revenue was marginally down by 2% The majority of the revenue was increased from the Photonic segment which surged by 30% to GBP 88.7 mn in FY22 on account of improved demand for VCSELs which are used in 3D sensing technology.  
• Sluggish Profitability Margins: In FY22, the Gross margin of IQE was 15.8% against the industry median of 8% and the operating margin of the group was negative 43.6% in FY22, whereas the industry median was positive 21.4%. Also, the net margin declined by negative 44.5% in a similar period (FY22) versus the positive net margin of the industry median of 16.0%.
• Inefficient Debt Management: During FY22, the company reported a higher Debt/ Equity ratio of 0.44x, when measured against the industry median of 0.17x. Further, the % of long-term Debt to the Total Capital of IQE was 26.5% in FY22, as compared to the industry median of 9.2%.
• Technical Outlook: The stock made a recent high of more than GBX 60.00 and post that the prices corrected forming a lower top lower bottom and still in the downtrend. The momentum oscillator, Relative Strength Index is pointing at 45.27 which is the middle of the oversold and overbought territory, depicting indecisiveness towards the stock trend.

Share Price Chart

Conclusion

Based on the sluggish profitability margins, inefficient debt management, declining stock prices, and macroeconomic challenges, a "WATCH" recommendation on IQE PLC (LSE: IQE) has been given at the current market price of GBX 20.57 (as of 06 July 2023, 09:00 AM GMT+1). 

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

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 06 July 2023. The reference data in this report has been partly sourced from REFINITIV.

Note 3: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

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