IQE Plc

IQE Plc (LON: IQE) is a technology, hardware and equipment Company, which provides wafer services and advanced wafer products to the semiconductor industry.

The Company will release H1 FY2020 results on 8 September 2020.

Investment Highlights: IQE Plc – Hold at GBX 57.75
 

1. The Group is expecting to return to profitability and expect adjusted operating profit for the first half of the financial year 2020 to be in lower single-digit.

2. Due to the impact of external factors and there is a possibility current demand could decline or economic effects of covid-19 get clearer.

3. In the last 1 month, the stock has given a decent return of 14.58%, which shows the stock is reacting to the positive investment sentiments driven by the economic recovery.
 

Trading Update for H1 FY2020 ending 30 June 2020 (released on 12 June 2020)

The Group’s revenue in the first quarter of the financial year 2020 stood ahead of expectations and trading in the second quarter till date has been robust in Photonics Business unit and Wireless Business unit. The Company expects its revenue to be around £85 million in the first half of the financial year 2020, reflecting an increase of 27% versus H1 FY2019 data. The Company remained cash generative in H1 FY2020 and reduced its capital expenditure, operating costs and working capital requirements. The Group has reduced its net debt with strong liquidity and increased credit facilities.

One Year Share Price Chart


Daily Chart as of August 24, 2020, after the market close (Source: Refinitiv,Thomson Reuters)

Key Risks

In 2020, headwinds are expected in the short run with the global spread of Coronavirus. Excessive competition in the industry could affect the revenue and profitability of the Group. Being an IT company, the IQE needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance.

Valuation Methodology

Technical Performance

From the technical standpoint, 14-day RSI is currently close to an oversold zone, which means there is a good potential for a short term rebound in the stock price.

The shares were trading well above the short-term support level of 100-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Recommendation
In the financial year 2019, the Group experienced a challenging year due to geopolitical tensions. Despite the uncertainties, trading in the H1 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 and has the potential to emerge even stronger post-COVID-19 scenario when opportunities arise. At Present, IQE is not able to give proper guidance for FY2020.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance for IQE Plc at the closing price of GBX 57.75 (as on 24 August 2020) and will recommend fresh buying at the right time.

*All forecasted figures and Industry Information have been taken from Refinitiv, Thomson Reuters.

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