IQE has released its full year results for the year to December 2015. Revenue of £114.0m (N+1Se: £117.8m) and adj. EPS of 2.6p (N+1Se: 2.6p) were in-line with expectations. Cash generation was strong resulting in net debt reducing to £23.2m (N+1Se: 24.2m). As previously announced, weakness in the smartphone market led to a reduction in Wireless revenues (-11%) but this was offset by strong growth in Photonics (+28%). Additionally the group made strong progress monetising its significant IP portfolio, achieving £8.0m of license income in the year. There are ongoing licensing opportunities with c.£2m already achieved in Q1’16. The group has made a strong start to 2016 and we do not expect to make any material changes to our forecasts. IQE is heading into a particularly exciting period as strong momentum in the compound semiconductor industry and high levels of external investment combine with IQE’s reducing deferred consideration commitments and increasing diversification. Trading on just 6.4x FY’16 PER we believe the shares are highly attractive and retain our 29p target price, offering significant upside from the current level. Buy.
