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Weak guidance, and an acquisition which supposes flawless execution

  • 25 Oct 16

ams reported Q3 revenues of €146.7m, corresponding to a 10.8% increase sequentially but a 4.1% decrease yoy. The Products business line accounted for €131.7m (+9.3% sequentially, -7.5% yoy), leaving €15m to the Foundry business (+41.5% yoy). The adj. gross margin reached 55.4% (53% in IFRS), down 160bp yoy (130bp in IFRS); the adj. EBIT, came in at €28m (€49.7m in IFRS), for a margin of 19.1% (vs. 33.9% in IFRS), leading to a net result of €55.9m. For Q3, the company expects a muted quarter due to a negative development concerning a particular customer in the consumer end market and a production yield issue in an industrial product line, the latter unlikely to be solved before early 2017. This will lead to expected revenues of between €127m and €134m, while the customer-specific development may result in negative profitability effects due to depreciation of work-in-progress inventory, leading to an expected adj. EBIT margin of 11-13%. Moreover, the company announced the acquisition of Heptagon, a specialist in micro-optics and optical sensing solutions with particular expertise in high performance optical packaging. The transaction includes an upfront consideration in cash ($64m) and shares (shares currently held in treasury combined with a 15% capital increase), for a total of $570m, as well as an earn-out consideration subject to future results but potentially as high as $285m. This takes the company’s potential value to $855m, i.e. 9.5x the current TTM revenues of $90m. These revenues are associated with negative profitability, which is expected to disappear following a capacity increase funded by $250m of existing cash and triggered by a specific customer commitment starting next year. The combination of the two activities is expected to result in a 30% CAGR for the coming three years with a profitability target of 30% EBIT margin from 2019; the deal is expected to close by early 2017.