IQE Plc – Expecting Growth with Deployment of 5G Communication Infrastructure

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

Trading Update for First half of the Financial Year 2020 (30 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. IQE production has not been impacted by the outbreak of a covid-19 pandemic, and all sites are operational with safety measures globally. The Company expects its revenue to be around GBP 85 million in the first half of the financial year 2020, reflecting an increase of 27% versus H1 FY2019 data. 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. 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.

Share Price Performance
 
Daily Chart as of 2 July 2020, before the market close (Source: Refinitiv,Thomson Reuters)

IQE Plc shares were trading at GBX 51.13 at the time of writing before the market close (at 12.04 PM GMT+1) on 2July 2020 and up by 0.75% versus the previous day closing price. Stock 52 week High and Low were GBX 76.30and GBX 18.86, respectively.

Valuation Methodology 



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.

Conclusion
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 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.
Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 51.13 (as on 2 July 2020, before the market close at 12.04 PM GMT+1) and will recommend fresh buying at the right time.

Vianet Group Plc – Transforming Performance by Providing Realtime Insights

Vianet Group Plc (LON: VNET) is a technology service provider that offers business insights through the internet of things (IoT). 

AGM Statement (30 June 2020)
The Group’s performance for the first two months of the FY 2021 remained encouraging with losses below forecasts. UK government announced on 23^rd June 2020 that pubs could re-open from 4^th July 2020 and social distancing need to be maintained to 1 meter plus. Majority of pubs in which VNET service will begin to re-open from 4^th July, while some of pubs under Smart Zones division may not reopen immediately or take time to return to normal trade levels. The Group’s proposal for temporary pricing relief to pub customers has received well and result in approximately 70% billing of normal contracted fees until 31^st October 2020 for weekly support services and by then normal contract terms will be resumed. The Group received first order for Smart Shield, pubs sanitisation service. The hospitality customers based out of the UK and VNET partner AMC Theatres in North America are also planning to reopen in the month of July. The Group increased investment in Q4 2020 in Smart Machines have started to generate results. The Company is having an encouraging pipeline and has finalised Contracts with Lavazza and Tchibo. The Group witnessed a strong trend during the period and expects the same post lockdown as demand for remote connection requirement is increasing rapidly. At Present, the situation remained uncertain, but the Company is confident to be in a solid position to resume strong earnings growth with decent momentum to deliver exciting growth opportunities.

Share Price Performance
 
Daily Chart as of 2 July 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Vianet Group Plc shares were trading at GBX 95.20 at the time of writing before the market close (at 10.20 AM GMT+1) on 2 July 2020 and down by 0.83% versus the previous day closing price. Stock 52 week High and Low were GBX 169.75and GBX 54.50, respectively.

Valuation Methodology


Key Risks
The company operates inmultiple geographies, and its profits can be impacted negatively due to foreign exchange rate fluctuations. Furthermore, the United Kingdom is facing the most significant slowdown in productivity presently.

Conclusion
The trading for the first two months of the financial year 2021 remained strong, and losses were below forecasted figures. The Group has a strong pipeline with positive momentum and have won many new contracts. The Group expect strong trend to continue post lockdown period and will provide exciting growth opportunities. The company had shown a decline in the financial performance in the financial year 2020 but remained in good shape to deliver strong earnings growth and mainly focus on the exciting growth opportunities. In the geographical areas, the company is making sales investment to accelerate growth, with extra focus on developing the capability and contactless payment device connectivity. The company is having decent cash flow and recurring income. With a robust balance sheet and operational cash generation capabilities, it allows the group to exploit further investment opportunities.
 
Based on the decent growth prospects and supported by the valuation as done above, we have given a “Speculative Buy” recommendation at the current price of GBX 95.20 (as on 2July 2020, before the market close at 10.20 AM GMT+1) with lower double-digit upside potential based on 11.20x  Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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