IQE - Well positioned to withstand near-term uncertainty
Yesterday’s trading update confirms that IQE’s FY19 results will be in line with the revised guidance it provided in November when the full extent of the impact of the US-China trade war became visible. We have cut our FY20 revenue estimate by 6%. In IQE’s case the impact of COVID-19 on global handset demand is likely to be softened by gaining share in both the wireless and photonics markets. However, the full effect of the pandemic on the global economy and IQE’s business remains to be seen.
25 Mar 20
Taking Stock: tumbleweed on Threadneedle Street
Good morning. With Friday’s (31 January) Brexit, the UK said farewell to the uncertainties that dogged the market in 2019. 2019 was the weakest IPO market in a decade, with the LSE’s 36 listings making it the quietest year since 2009. Now, investors tell us that there is a paucity of new ideas - with take-outs like Sophos and StatPro, there is money to recycle and they are concerned about a declining pool of listed securities. The most important determinant of a successful IPO is finding buyers for new shares, so this is positive news. At the same time, this is a golden age for technology and the entrepreneur and the UK is the best place in the world to set up and build a tech company, in our view. London is the leading city for unicorns, producing 46 unicorns since 1990; Manchester, Oxford, Cambridge, Edinburgh and Bristol have a combined total of 20. However, Capital Markets has a strong competitor – we note that in 2019, venture funding into the UK was £10bn, +40% Y/Y, and it accounted for 33% of all European Tech investment. We believe that the climate for IPOs will improve from here on in as more investors follow Sir Martin Sorrell’s view (btw his S4C (SFOR.LN, Not covered) was a reverse, not an IPO) who opines, "When you have a legacy company, and all the holding companies have legacy bits, that business is more challenged than if you start with a clean sheet of paper. Starting clean enables you to choose where you are going to go and areas of activity, without being a prisoner of history. While legacy businesses have the advantage of people with great talent, contracts and networks, historic structures impose conditions on operations that make it more difficult.” The wake-up call. 2019 was the quietest of IPO years. But we think that the market will start up again in 2020. Now, the onus is on UK Capital Markets to look not only domestically, but also globally, to attract the brightest to the UK. The UK has a superb IPO track record. Looking to the IPOs since 2010, buying all that are still on the market gives a 155% return (priced 3 February 2020, 08:45 GMT). However, there are some points to note. (i) The IPO market is characterised by binary outcomes - this is a stockpicker's paradise. (ii) There is a residual effect of the Neil Woodford fund collapse, meaning that it may be harder (read: more expensive) for smaller/illiquid firms to ‘get away’ and to attract an audience in the aftermarket. (iii) The best performing IPO of the last decade was Blue Prism (PRSM.LN, not covered) – it has recorded a 2,136% return since its March 2016 IPO. (iv) While the era of Global Britain may have dawned, foreign domiciled companies have had the poorest post-listing track records. (v) We are not through the uncertainty as the UK’s final trading relationship with the EU, our biggest trading partner, is not decided and 60% of London firms anticipate a ‘Brexit Brain Drain’, where tech talent leaves the UK post-Brexit.
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03 Feb 20
Morning View - Jan 30 2020
Mitie Group plc - BUY: Trading update - earnings guidance unchanged | Serica Energy plc - BUY: Bruce shutdown for two months | Avon Rubber plc - HOLD: And the beat goes on | Fuller Smith & Turner plc - HOLD: Good festive update supports FY expectations | N Brown Group plc - HOLD: New CFO appointed | Renishaw plc - SELL: A challenging 1H: recovery looks set to be patchy and gradual; valuations look stretched as a result | DWF Group plc - BUY: CMD highlights model differentiation & international opportunities | Aveva Group - HOLD: “In the Blue Ridge Mountains of Virginia, on the tail of the lonesome woke” | IQE plc - HOLD: Apple results read across | FDM Group plc - HOLD: Mounties safeguard the ennobled – not just in Canada
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30 Jan 20
IQE - Leading innovation from within
The breadth of IQE’s technology portfolio and ability to serve compound semiconductor chip customers in the US and Asia puts it in a good position to benefit from rising demand for compound semiconductor applications for 5G and connected devices. The share price has been hit by the shift to Asian-centric supply chains caused by US-Chinese trade tensions, and resultant reductions to management guidance. Although the timing of a recovery is difficult to gauge, we see scope for earnings recovery as IQE secures additional contracts in Asia and leverages its IP portfolio into sustainable profit growth and cash generation.
14 Jan 20
IQE - Continued impact from supply chain disruption
IQE’s reduced guidance for FY19 revenues of £136–142m (vs £140–160m previously) reflects primarily the greater than anticipated disruption to its major US wireless customers as a result of the US/China trade war. There is good evidence to support a recovery in the medium term: the qualification of products and tools in the Asian supply chain for both 3D sensing and wireless RF is encouraging, while exposure to 5G remains attractive. However, the timing of a recovery is difficult to gauge and with Q120 expected to be seasonally quiet we downgrade our FY19 and FY20 revenue estimates by 5.3% and 15% respectively, with FY19 EPS reduced from a 0.5p profit to a 0.8p loss and FY20 EPS reduced from 2.3p to 0.3p.
19 Nov 19
US industrial production misses in Oct, Diploma expects “moderately lower u/l growth,” IQE issues warning but “cautiously optimistic” on 2020
Diploma (DPLM LN, £1.9bn) FY19 results (30/09) – u/l rev growth 5% y/y vs. +7% y/y in FY18; adj. operating margin +30bps y/y from stronger GM and cost controls; adj. PBT +14% y/y; DPS +14% y/y; outlook expects “moderately lower underlying growth” from political & economic uncertainty to be offset by strong acquisition contributions | IQE (IQE LN, £609m) FY19 trading update revises down rev guidance by ~7% (mid-point), expecting “mid-single digit adj. operating loss”; expects seasonally weak Q1 2020 but “cautiously optimistic about a return to growth” | Eddie Stobart (ESL LN, £269m) may receive £75m rescue package from former boss Andrew Tinkler, adding an alternative to last week’s Dbay offer (source: FT.com) | Pressure Technologies (PRES LN, £19m) confirms commencement of trial relating to prosecution by HSE following fatal accident in June 2015 | Chamberlin (CMH LN, £2m) H1 20 interims (30/09) reports 26% y/y fall in revenues; op. loss pre-restructuring increased from £0.4m to £1.0m; expect better H2 due to higher volumes from existing automotive customers; new contracts and higher selling prices but anticipate small loss for FY20
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18 Nov 19
Uber targets 2021 profitability, Comcast launches new TV Ads, US-Sino tensions expected to continue
Uber announced earnings Monday that beat analyst estimates on the top and bottom lines for its third quarter of 2019. But the stock fell as much about 5% after the company reported over $1 billion in net losses, topping its $986 million loss during the same quarter last year. The loss includes $401 million in stock-based compensation. Following the results, in an interview with CNBC’s Deirdre Bosa on Monday, Khosrowshahi (CEO) said the company is targeting adjusted EBITDA profitability in 2021. We believe Mobility companies will continue to struggle to convince the capital markets until investors see the model proven.
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05 Nov 19
Intel shares surge on best ever quarter
Intel’s share price rose 7% on Friday, driving the Philadelphia Semiconductor Index to all-time highs. Intel’ stellar quarter was supplemented by improved guidance and bullish commentary from the management on the strength of demand from cloud service providers, underscoring the theme of an ‘insatiable demand for data’. The semiconductor cycle appears to be back, in spite of recent warnings from TI.
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28 Oct 19
Texas Instruments tanks semis; Lyft forecasts FY21 profit; TransferWise expands to Middle East
The recent run-up in semiconductor stocks hit a speed bump Tuesday afternoon that could turn into much more. Texas Instruments gave a forecast that was much worse than expected in a Tuesday earnings report, raising questions over whether the cycle is anywhere near the trough as was widely expected.
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23 Oct 19
IQE - Optimising Asian operations
IQE has acquired the third-party shareholdings in its CSDC joint venture in Singapore for a nominal fee. This gives it control of the operation, which is currently loss making, enabling it to restructure the business and focus it on emerging sales opportunities in Asia for molecular beam epitaxy (MBE)-based products. Short term, the deal has a negative impact on earnings. We reduce our FY19 and FY20 EPS estimates by 8% and 5%, respectively.
10 Oct 19
Shore Capital Technology Bytes
CASTLETON TECHNOLOGY^ (CTP, NR, CNP) – Miss to full year expectations due to both product and professional services revenue being lower than anticipated. | OSIRIUM TECHNOLOGIES^ (OSI, NR, CNP) - New customer and upsell contract wins across multiple sectors. | IQE^ (IQE, NR, CNP) - Acquisition of 100% of CSDC Private Limited (“CSDC”) for a nominal sum (approximately US$2 and 50 cents). Loss making unit secures the strategic direction of IQE in Singapore - consolidated group accounts for FY19 will be adversely affected by c.£0.5m.
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10 Oct 19
Small Cap Feast
Registration document approved for Helios Towers. The Group provides essential network services, flexible infrastructure solutions and reliable power supply to mobile network operators in five African growth economies. Revenue increased 7 per cent. year-on-year to US$191m (H1 2018: US$178m), with Adjusted EBITDA up 15 per cent. year-on-year at US$99m (H1 2018: US$86m) for the six months ended 30 June 2019. Pricing rumoured at 115p to 145p implying valuation of up to $1.8bn. Expected Oct 2019.
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10 Oct 19
ARM seeks car chip solution, PlayStation 5 announced for Dec 2020
Arm, the British chip technology firm owned by Japan's Softbank Group, is joining with automakers General Motors Co and Toyota Motor to establish common computing systems for self-driving cars, an effort the companies hope will speed development of the technology. Arm supplies the underlying technology for the processors found in today's smart phones but does not make chips itself. Its ties to the automotive industry go back to the late 1990s, when automakers began to add computer chips to vehicles for functions like engine control and diagnostics.
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09 Oct 19
Small Cap Feast
Entertainment AI (EAI) - This was an RTO into Blockchain Worldwide (BLOC), It has also transferred from the standard list to AIM. Focused on providing its global automotive and lifestyle audiences and its strategic partner audiences with real-time access, in a frictionless way, to "in the moment" opportunities from more relevant short form video content to "one-click" e-commerce, £8.6m raised. H1 2019 actuals - GTChannel subsidiary's MCN gross advertising revenue at $8.7 m, up 107%
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30 Sep 19
Micron gives bleak outlook, IoT in smart cities, Amazon unveils smart glasses
Micron Technology forecast first-quarter profit below Wall Street targets, saying it was "Mindful" of economic and trade uncertainty even though there were signs of an uptick in memory chip demand, sending its shares down nearly 6.5%. The long-drawn U.S.-China trade war has impacted chipmakers already reeling under a saturated smartphone market, especially after the Trump administration blocked access to Huawei HWT.UL, the world's largest telecoms equipment maker and Micron's single largest customer
IQE Amino Technologies
27 Sep 19
US lawmakers propose $1bn fund, Alibaba unveils AI chip, Xbox gaming opens to Android
A U.S. House panel unveiled bipartisan legislation this week that would authorize $1 billion for small and rural wireless providers to replace network equipment from companies including Huawei and ZTE that lawmakers say pose a national security risk. The top Democrats and Republicans on the House Energy and Commerce Committee said in a joint statement the bill would protect the "Nation's communications networks from foreign adversaries by helping small and rural wireless providers rootout suspect network equipment and replace it with more secure equipment."
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25 Sep 19
IQE - Executive interview
IQE’s CFO, Tim Pullen, discusses the company’s recent interim results and explains the operational measures IQE has put in place to support growth. He also explains why it is well placed to adapt to shifts in the global electronics supply chain being brought about by US/Chinese trade sanctions. With the infrastructure phase of the capacity-expansion programme nearing completion, he explains why future investment in capacity will be much more linear and discretionary, based on anticipated demand. As a result, supported by recent cost-control measures, the company expects to generate cash in H2. With an increased debt facility in place, management is confident it will not need to raise further capital. Tim ends by discussing how management sees margins evolving and how investors should view the timing of the company’s growth opportunities across multiple different applications.
12 Sep 19
IQE - Adjusting to supply chain shifts
As flagged in the June trading update, IQE’s H119 performance was affected by wireless customers cutting back inventory levels in response to lengthening mobile phone replacement cycles and the ongoing trade war between the US and China. Encouraged by the successful qualification, commencement of initial production and receipt of additional orders of wireless products destined for Asian supply chains, as well as the commencement of initial vertical cavity surface emitting laser (VCSEL) production for a second major customer at its new foundry in Newport, Wales, management has reiterated its FY19 guidance. We therefore leave our estimates unchanged.
03 Sep 19
Splunk acquires $1bn cloud software firm, US & Asia pour $3.7bn into UK Tech, Hedge funds steer away from Tech
Data analytics software maker Splunk Inc on Wednesday said it would acquire privately held SignalFx, which makes software for the cloud, in a cash and stock deal for about $1.05 billion. Splunk hopes the deal will boost its capabilities by allowing its customers to use SignalFx products to monitor their data centres and applications in real-time.
IQE Amino Technologies
27 Aug 19
Baidu earnings expected to fall further, Trump set to decide Huawei outcome, SoftBank employees to invest $20bn in fund
Chinese search giant Baidu is facing stiff competition from newer rivals and has seen over $60 billion of its value wiped off since its peak last year. At its peak in mid-May 2018, Baidu was worth around $99 billion - with its shares priced at $284. Stocks of the search giant have fallen to $96.7 a share with its market cap plunging to $33.8 billion. Baidu is part of China's internet trio - Baidu, Alibaba and Tencent - which have collectively been named "BAT." But it's facing an increasingly tough advertising market and has been falling behind the other two rivals.
IQE Amino Technologies
19 Aug 19
Nvidia’s tops expectations, Samsung display reconsiders output, Applied Materials forewarns memory chip recovery
Nvidia Corp on Thursday said new high-end graphics chips for video gamers was bringing its core business back to "Normalized" levels and raising profitability, as the company posted quarterly results ahead of Wall Street targets, sending shares up 5% in extended trading. South Korean panel maker Samsung Display said on Friday it is considering suspending one of its liquid crystal display production lines at home due to a supply glut. Samsung Display, a unit of Samsung Electronics Co Ltd, currently operates two LCD production sites in South Korea and one in China. Applied Materials Inc beat Wall Street estimates for quarterly revenue on Thursday, but the chip gear maker cautioned that recovery in the memory chip market is unlikely before 2020. The company, whose results are often seen as a barometer for the semiconductor industry, said spending by memory chip customers was lower in the third quarter, compared with a year earlier.
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16 Aug 19
China’s CB nears launch of digital currency, Uber falls to all-time low, Huawei debuts own operating system
An official at China's central bank has said the institution is nearing the launch of its digital currency. Speaking at an event in China over the weekend, Mu Changchun, deputy director of the payments unit at the People's Bank of China, said its researchers have been hard at work since last year to complete the systems needed to support the digital yuan offering and that it is "Close to being out." The news was reported by Bloomberg on Monday.
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13 Aug 19
Alphabet dethrones Apple as the cash king, Revolut launches free trading, AMD shares drop after weak earnings
After holding the title for more than a decade, Apple has been dethroned as the king of cash by Alphabet. The Google parent's holdings of cash and marketable securities, net of debt, topped $117 billion in the most recent quarter, exceeding Apple's recently reported cash pile of $102 billion, according to the Financial Times, which first reported the shift. British fintech firm Revolut is jumping into the online brokerage space with its own commission-free stock trading platform. The new service will allow users to buy a fraction of a share, with the minimum amount being $1 worth of stock. AMD reported mixed results in its earnings report Tuesday. The stock was down Wednesday as total revenue declined year over year, with the chipmaker blaming lower graphics channels sales and lower semi-custom product revenue for the declining revenue.
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01 Aug 19
IQE - Demonstrating resilience to supply chain shifts
IQE has recently announced the successful qualification, commencement of initial production and receipt of additional orders of wireless products destined for Asian supply chains, as well as the commencement of initial vertical cavity surface emitting laser (VCSEL) production for a second major customer at its new foundry in Newport. The share price has risen by 29% following the announcements, which demonstrate that IQE’s dominant position in the outsourced compound semiconductor epitaxy market gives resilience to reduced demand from individual customers.
29 Jul 19
DoJ opens antitrust review of big tech, Snap shares surge afer estimate beat, Texas Inst reports positive chip update
The US Department of Justice said on Tuesday that it's opening a broad antitrust review of big tech companies, sending shares of Amazon, Alphabet and Facebook lower in extended trading. While the DOJ didn't disclose specific company names, it's launching the review based on "New Washington threats" from Facebook, Google, Amazon and Apple, according to a report by the Wall Street Journal. Snap shares surged more than 12% in after-hours trading on Tuesday after the app developer reported quarterly results that soared past analysts' estimates. The company, which is the maker of Snapchat, posted a slimmerthan-expected loss for the second quarter while exceeding expectations for user growth and revenue. Texas Instruments provided some relief that a global slowdown in microchip demand would not be as long as feared, posting quarterly profit and revenue that beat Wall Street estimates on Tuesday. Shares of the company rose 6.4% to $127.70 in extended trading and were on track to open at a record high on Wednesday.
24 Jul 19
Shore Capital Technology Bytes
DOTDIGITAL^ (DOTD, NR, CNP) - Trading Update. Organic up c.15%, Adjusted EBITDA slightly ahead of market expectations. Momentum has continued into the new financial year. | GETBUSY^ (GETB) – H1 2019. 19% recurring revenue growth, adjusted loss before tax improvement of 42% to £(284)k. 2019 guided to be ahead of current market expectations. | SEEING MACHINES^ (SEE, NR, CNP) - Automotive Design Win Targeting Euro NCAP, expected to deliver incremental revenue between A$11m and A$30m. | IQE^ (IQE, NR, CNP) - Wireless qualification update - new qualifications for Asian supply chains. | GRESHAM TECHNOLOGIES^ (GHT, NR, CNP) – H1 FY19. Group revenues up 36% to £12.4m, adjusted EBITDA up 525% to £2.5m, “Excellent” start to net fiscal year, US pipeline has accelerated. | CYANCONNODE^ (CYAN, NR, CNP) - Investor Conference Call.
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23 Jul 19
Microsoft surges after strong cloud sales, CrowdStrike beats expectations, Apple to move AirPods production to Vietnam
Microsoft yesterday beat analysts' estimates for fourth-quarter revenue and profit, driven by continued sales increases from its cloud business and sending its shares to all-time highs. Shares of CrowdStrike climbed as much as 7% on Thursday after the cybersecurity company reported earnings for the first time since its IPO. For the quarter, CrowdStrike's loss per share was in line with analysts' estimates and revenue was slightly better than expected. Apple will begin soon trial production of AirPods in Vietnam to circumvent tariff fees imposed on Chinese-produced goods by Trump Administration. By expanding production outside of China, Apple can reduce the expenses caused by tariffs put in place by the Trump Administration.
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19 Jul 19
Australian banks to digitize bank guarantees, US Gov reviewing license requests for Huawei, Broadcom to acquire Symantec
Australia's top three banks said on Thursday they have agreed to partner with IBM and shopping mall owner Scentre Group to test blockchain technology to digitize bank guarantees. The companies are exploring how to move away from paper-based bank guarantees to cut processing time and the risk of fraud, Australia and New Zealand Banking Group, Westpac Banking Corp and Commonwealth Bank of Australia said in a statement. The US government said on Wednesday it was reviewing licence requests from US companies seeking to export products to China's Huawei "Under the highest national security scrutiny" since the company is still blacklisted. In an email to Reuters, the Commerce Department said that as it reviewed applications, it was applying the "Presumption of denial" standard associated with Entity Listed companies, meaning applications are unlikely to be approved. Symantec shares surged more than 20% in extended trading on Tuesday after Bloomberg reported that Broadcom is in advanced talks to acquire the security software vendor. The deal is reported to be worth more than $16bn, implying an EV/Sales multiple of 3.40x (Bloomberg). Agreement on a deal was close but could be delayed until after the July 4 holiday, according to people briefed on the move.
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04 Jul 19
Huawei granted temporary reprieve, Self-driving cars have 2 big challenges, Applied Material bets on memory chips
Huawei was granted a temporary reprieve as part of a broader accord between the Trump administration and the Chinese central government at a much-anticipated meeting between the countries’ leaders. The autonomous vehicle industry has two big challenges it needs to overcome before self-driving cars become widespread - technology and business models that can make money, according to Michelle Avary, head of autonomous mobility at the World Economic Forum. US chip gear maker Applied Materials on Monday agreed to buy Japanese peer Kokusai Electric for $2.2 billion from KKR & Co Inc, as it bets on rising demand for memory chips used in data centres, 5G phones and AI-powered devices.
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02 Jul 19
IQE - Executive interview
In this video CFO Tim Pullen, who joined IQE in February 2019, discusses his early impressions of the business as well as its medium- to longer-term outlook. He explains why management remains confident that there will be an inflection in demand for compound semiconductors and the initiatives that IQE has implemented across photonics/3D sensing, wireless and other applications to capitalise on this. He also discusses the benefits that management expects to generate from the optimisation and investment in the company’s manufacturing facilities, and the path to profitability and cash generation from here.
02 Jul 19
IQE - Supply chain issues intensify
IQE has cut its FY19 revenue and profit guidance in response to reduced demand from wireless customers and an internal issue affecting a major photonics (not VCSEL - vertical cavity surface emitting laser) customer. Following a 25% share price fall, the shares are trading within the range created by photonics peers on most metrics.
24 Jun 19
IQE - Impact of Huawei ban is limited and short term
IQE has assessed the potential impact on its business of the decision by the US Department of Commerce’s Bureau of Industry and Security to prohibit the sale to Huawei, by certain of IQE’s customers, of products covered by the Export Administration Regulations without obtaining an appropriate export licence. Following discussions across its customer base, IQE estimates that its current maximum risk exposure with regards to this ban is less than 5% of its total FY19 revenue guidance. We therefore leave our estimates and indicative valuation of 91–99p/share unchanged.
24 May 19
Small Cap Feast
Essensys plc—a provider of mission-critical SaaS platforms and on-demand cloud services to the high growth flexible workspace industry, plans to join AIM. £28m raised. Half primary, half shareholder sell down expected 29 May 2019. Mkt cap £72.6m. Issue price 151p. SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
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24 May 19
Small Cap Feast
SDX Energy plc—a North Africa focused oil and gas company, announces its intention to complete a Canadian plan of arrangement under section 192 of the Canada Business Corporations Act and will have shares de-listed from the TSX-V and admitted to trading on AIM. Expected 28 May 2019, anticipated market cap of £76m Renold plc—a leading international supplier of industrial chains and related power transmission products, announced that it will cancel the listing of the Company from the premium segment and apply for admission on AIM. Expected 06 June 2019. Distribution Finance Capital Holdings plc — specialist lender which builds relationships with manufacturers and then provides working capital solutions up and down their supply chains to drive their growth is looking to join AIM. No raise, secondary offering of £19.8m at 90p, expected market cap of £95.98m. Expected 09 May 2019. Alumasc Group plc, the premium building products, systems and solutions group, has announced its intention to move from the Premium Segment of the main market to AIM. Expected market cap of £33.4m. Expected 25 June 2019
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02 May 19
IQE - Getting ready for more VCSEL ramp-ups
As flagged in its post-close trading update, IQE’s FY18 performance was severely affected by a short-term dip in production for one of its volume VCSEL programmes. While this does not affect the medium-term prospects for photonics growth, which are based on multiple VCSEL opportunities, management has downgraded FY19 guidance, primarily reflecting short-term softness in the handset market, which it expects will recover during H219. We cut our FY19 EPS estimate by 40%.
27 Mar 19
IQE - Assessment of short-term VCSEL slowdown
IQE’s post-close trading update shows that the short-term dip in production for one of its volume VCSEL programmes had a more severe impact on FY18 performance than management originally estimated. Although we are cutting our FY18 EPS estimate by 10.6%, we note the underperformance compared with management’s guidance given in November appears confined to FY18. Importantly, it does not affect the prospects for photonics growth in the medium term, which are based on multiple VCSEL opportunities. Our revised estimates give an indicative value of 73p/share.
29 Jan 19
IQE - Capitalising on market transitions
IQE is benefiting from multiple megatrends as it supplies epitaxy for the photonics chips that transmit data in the volumes required for full adoption of the Internet of Things and provide the accurate visual information required for autonomous vehicles, Industry 4.0, augmented reality and virtual reality. This is driving a second wave of growth, with an estimated 66% increase in PBT forecast between FY16 and FY19. Our DCF analysis indicates that the share price is undervalued if photonics growth resumes in Q219 and is sustained over a five-year period, in line with management guidance.
23 Nov 18
IQE - Short-term VCSEL slowdown hits profits
IQE has announced an immediate slowdown in shipments of VCSEL wafers, which materially affects FY18 revenues and profitability, and has issued revised guidance. Although we have cut our EPS estimates by 43% and 24% for FY18 and FY19 respectively, we note this is a short-term problem that does not impact the prospects for photonics growth in the medium term. Our revised estimates give an indicative value of 73p/share.
15 Nov 18
Small Cap Feast
Azalea Energy—oil and gas production and development company based in Louisiana, United States. Net production of 13 MMcfe/D (2,200 boepd) and total 1P proved reserves of 91 Bcfe (15.1 mmboe), 2P reserves of 111 Bcfe (18.5 mmboe) raising up to $38m, expected mkt cap over $100m. Due Oct Summerway Capital investing company established to acquire companies or businesses which the directors of the Company believe have the potential for strategic, operational and performance improvement so as to create shareholder value. Offer TBC, market cap TBC expected 19 October Admission is being sought as a result of the proposed RTO of Cambian Group plc following completion of the acquisition by CareTech a leading provider of specialist social care services, supporting adults and children with a wide range of complex needs. No raise, market cap TBC expected 19 October. PetroTal (TAL.TO) - The exploration and production company focused on oil assets in Peru is seeking a secondary AIM quotation before the end of 2018. Path Investments— First acquisition of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Seeking £10m raise. Due late Oct Green Man Gaming—pure play e-commerce and technology company in the digital video games industry. revenue CAGR growth of 26.7% in the last three years to £47.5m. Due Mid October 2018. EBITDA Profitable. Offer TBA Crossword Cybersecurity PLC* (NEX:CCS)—the technology commercialisation company focusing exclusively on the cyber security sector is exploring its options in relation to a potential move to the AIM market of the London Stock Exchange which, if it were to proceed, would likely take place over the next few months.
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15 Oct 18
IQE - Multiple VCSEL programmes entering production
During H118 IQE experienced double-digit sales growth on a constant currency basis in each of its three primary markets, although this was partly offset by a currency headwind. The investment in multiple VCSEL qualifications and the Newport foundry depressed margins, but underpins management’s expectations of a sustained photonics ramp-up in H218 and FY19. Acknowledging the currency headwind and one-off H118 photonics costs, we revise our estimates downwards.
04 Sep 18
Small Cap Breakfast
Path Investments (PATH) -RTO of a 50 per cent. participating interest in the producing Alfeld-Elze II gas field located 22 kilometres south of Hannover in Germany. Offer TBA. Due late Aug. Kropz PLC-Intention to float by the emerging plant nutrient producer with an advanced stage phosphate mining project in South Africa and exploration assets in West Africa
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29 Aug 18
IQE - Six more VCSEL projects in mass production
IQE’s post-H118 close trading update notes the group continues to trade in line with current market expectations. Importantly, it comments on a significant increase in photonics revenues from product qualifications, underpinning management’s expectation of a photonics ramp-up in H218 and FY19. We raise our revenue estimates slightly but otherwise leave our forecasts unchanged.
07 Aug 18
Bioquell (BQE LN) Strong interims drive full year upgrades | Elektron Technology (EKT LN) Checkit roll-out by Center Parcs | Gresham Technologies (GHT LN) Positive start to H2 underpins confidence in FY | IQE (IQE LN) Solid first half trading, outlook maintained
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24 Jul 18
IQE Short Attack analysis & The Shifting Research Landscape
Here are my slides from the talk I gave at the brilliant Mello 2018 Investor Show. The main theme of the talk was what is wrong with the current landscape, and how it is shifting three months into MiFID II. To demonstrate what is broken I analyse events around the IQE short attacks in early February. It is a perfect example of the huge information asymmetry between private investors and institutions, and one obvious solution to help close that gap.
26 Apr 18
Doubling in photonics revenues drives growth
IQE’s FY17 results confirm that the photonics volume ramp-up referred to in the pre-close update has delivered the strong growth in revenues (16%) and PBT (18%) that was expected. Based on management’s guidance for this growth trend to continue, we upgrade our FY18 estimates and note the potential for sustained growth over the next three to five years.
29 Mar 18
FY’17 a transformational year, more to come in FY’18
IQE has released its results for the year to December ’17. While the results themselves are strong, these were largely flagged at the trading update in December, and we see the FY’18 and FY’19 outlook as more important for the share price from here. The group expects continued growth in wafer sales, driven by both the expansion of existing business and qualifications of new business streams. Given the group’s strong operational gearing, we expect this to lead to a steady expansion in group margins. The group has given explicit forward guidance for the first time, which is in-line with our FY’18 revenue and EBIT forecasts, although a higher non-cash tax charge is likely to lead to EPS downgrades. With further high growth expected in FY’18 and the potential for more strong growth in FY’19 and beyond, we retain our positive stance.
20 Mar 18
Small Cap Breakfast
Kore Potash— advanced stage mineral exploration and development company whose primary asset is its interest in the Sintoukola Project, a potash project located in the Republic of Congo. ) Measured, Indicated and Inferred Mineral Resource of 5,953Mt at an average grade of 22.0% KCl. Offer TBA. Due end March. Perfomatrix PLC, a global end to end Performance Marketing technology and services company headquartered in the UK, is looking to join AIM in early April 2018, offer TBC Crusader Resources, an ASX-listed public company incorporated in Australia, which is primarily focused on the exploration and development of gold assets in Brazil. Offer TBC, expected late March. SimplyBiz, a Financial Services Firm, looking to join AIM raising £30m via placing and £34.6m via a sale of existing ordinary shares at 170p giving a market cap of £130m. Expected 4 April Bacanora Lithium—Readmission. No new money. Mkt cap £140m. Due 21 March. the new holding company for Bacanora Minerals Ltd Core Industrial REIT—established to invest in Irish-based industrial properties, predominantly located in the Greater Dublin Area. Vendor placing and new funds to a total of €225m, Target gross proceeds €207m. Expected Mid March Polarean - Medical drug-device combination company operating in the high resolution medical imaging market. Offer TBC. Due 26 March
IQE MER NAH WYN PEN IKA RED AMPH EVG ANR
20 Mar 18
Semiconductor Wafer Pioneer
IQE is a leading global supplier of advanced semiconductor wafers that are used in various applications ranging from mobile communications to industrial power. The company boasts a diversified global customer base and a unique IP portfolio with over 150 patents that enables the firm to provide a unique service to its customers. Headquartered in Cardiff, Wales, IQE shares were often misunderstood or underappreciated by investors in the past. However, as the company continued to deliver healthy growth winning volume contracts for new technologies (e.g. VCSEL), the share price nearly tripled in 2017 and the company successfully placed new shares raising £95m in November. Recent reports published by funds with short positions questioning IQE’s accounting with regard to profit and cash flow contribution from its joint ventures sent the stock price down by 45% from its November high. That said, the company rejected the allegation with the statement saying that the information in the short sellers report is “either factually inaccurate or has previously been disclosed in IQE’s annual reports and financial statements”. The company also appointed KPMG as a new auditor replacing PwC as of 12th February saying “the company holds itself to the highest standards of transparency, governance and integrity”. We find the management responses were timely and expect the share price to be stabilised going forward.
06 Mar 18
Small Cap Breakfast
VR Education Holdings—a virtual reality software and technology company. Raising £6m, mkt cap c €22m. Due 12 March SimplyBiz, a Financial Services Firm, reported to be considering an IPO targeting a market capitalisation of between £140m and £155m in a listing that would raise £30m of new money. Bacanora Lithium—Readmission. No new money. Mkt cap £140m. Due 21 March. the new holding company for Bacanora Minerals Ltd Stirling Industries—Acquisition vehicle focusing on industrials. Offer TBA. Due 5 March. GRC International Group— holding company for a group of companies providing a range of products and services to address the IT governance, risk management and compliance requirements of organisations. Offer raising £5m at 70p with market cap of £40.2m, expected 5 Mar 2018 Core Industrial REIT—established to invest in Irish-based industrial properties, predominantly located in the Greater Dublin Area. Vendor placing and new funds to a total of €225m, Target gross proceeds €207m. Expected Mid March Polarean - Medical drug-device combination company operating in the high resolution medical imaging market. Offer TBC. Due Early March Block Energy—a NEX Listed UK based oil exploration and production company whose main country of operation is the Republic of Georgia, looks to join AIM end of February 2018. Offer TBC
IQE INQO NUOG TND MPAY SYN K3C ORR CWR
01 Mar 18
Centaur Media (CAU LN) Investor Day | IQE (IQE LN) Joint Venture starting to deliver | LiDCO Group (LID LN) Appointment of French distributor | Northgate (NTG LN) Complex update – change to fleet strategy | Rathbone Brothers (RAT LN) Solid FY17 outturn, some additional cost investment flagged | Surgical Innovations Group (SUN LN) Prelims to show strong growth | Wilmington (WIL LN) Interim results & new Chairman | Zinc Media Group (ZIN LN) Update and contract awards | Zytronic (ZYT LN) AGM Update
IQE CAU LID NTG RAT SUN WIL ZIN ZYT
22 Feb 18
Small Cap Breakfast
Block Energy—a NEX Listed UK based oil exploration and production company whose main country of operation is the Republic of Georgia, looks to join AIM end of February 2018. Offer TBC OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Offer raising £30m at 165p with mkt cap of £100m . Due 9 Feb.
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05 Feb 18
VCSEL growth underpins revenue upgrade
IQE’s pre-close trading update noted that management expects FY17 revenues to be ahead of market expectations. Noting that the upgrade is driven by delivery of volume epitaxy on a programme that we infer is the new iPhone X, a programme which will continue throughout FY18, we raise our revenue estimates for both FY17 and FY18, but keep EPS numbers unchanged as the proportion of licence revenues in the mix is lower.
02 Jan 18
N+1 Singer - IQE - VCSEL ramp up drives upgrades
IQE’s full year trading update confirmed that the anticipated VCSEL ramp up is driving upgrades to all forecast years. The Photonics division is on track to achieve c.100% revenue growth, well ahead of our prior 50% forecast. Total FY’17 revenue is expected to be at least £150.0m, with adj. PBT c.4% ahead of expectations despite a reduction in high margin licence income. We expect the strong growth in Photonics to continue, resulting in c.17% adj. PBT upgrades in FY’18. With the number of devices containing IQE’s VCSEL technology set to expand, and further volume increases likely from the group’s other technologies, we retain our 181p TP and Buy recommendation.
21 Dec 17
N+1 Singer - IQE - Photonics growth drives upgrades as expected
IQE’s full year trading update shows strong wafer sales, with the anticipated ramp up in VCSEL wafers leading to outperformance versus full year expectations. Revenues are now expected to be not less than £150m, with PBT ahead of expectations despite lower licence income. We continue to believe that IQE has secured a valuable position in the VCSEL wafer market, providing a strong platform for further strong growth in FY’18 and beyond. IQE was a key pick for 2017 and has served us well (+310%). We expect further outperformance in FY’18 and retain our Buy recommendation and 181p target price.
20 Dec 17
Small Cap Breakfast
Erris Resources PLC—a mineral exploration and development company currently focused on two geographic areas. Offer TBC, expected 21 December 2017 CIP Merchant Capital—Closed ended investment Company. Sector focus oil & gas, healthcare, pharma, and real estate. Raising £55m. Due 21 Dec Panthera Resources— The Company was established to act as a holding company for Indo Gold Limited, an unlisted Australian registered company. The Company aims to explore and develop gold assets in India and West Africa. No raise. Expected 21 Dec Sumo Group—one of the UK's largest independent developers of AAA-rated video games providing both turnkey and codevelopment solutions, including initial concept and pre-production. Raising £38.45m and vendor sale of £39,7m. Mkt cap £145m. Bushveld Minerals—RTO of Bushveld Vametco and therefore 78.8% of Strategic Minerals Corporation, the intermediate holding company that owns a 75 per cent. interest in the Vametco Vanadium Mine. Eqtec—Company with access to a proprietary advanced gasification technology used in industrial size power plants to convert waste into synthetic gas to generate electricity. Raising £1.6m. Mkt Cap £8.7m. Due 21 Dec. Volex VLX.L—The global provider of cable assemblies is proposing to move from the main market to AIM on 19 January. £75m market cap. FYMar18E rev £241.5m and £7.19m PBT. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m.
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20 Dec 17
N+1 Singer - IQE - Apple investment in VCSELs highlights upgrade potential
Apple announced yesterday that US optical components manufacturer Finisar (NASDAQ: FNSR) will receive $390m from its Advanced Manufacturing Fund. The award will be used to increase Finisar’s R&D spending and high-volume production of VCSELs. We had always expected Apple to dual source VCSEL components when possible, so we see the fundamental IQE investment case as unchanged on the back of the investment, however we are highly encouraged by the accompanying commentary on Apple’s Q4’17 VCSEL volumes. We believe that IQE is the only volume source of VCSEL wafers currently available. IQE was one of our key picks for 2017 and has served us well (+325%). With a recently strengthened balance sheet and further positive newsflow expected, we remain highly positive on the stock and retain our Buy recommendation.
14 Dec 17
N+1 Singer - Morning Song 14-12-2017
Advanced Medical Solutions (AMS LN) In line FY trading update | Infrastructure India (IIP LN) NAV declines further - financing discussions continue | IQE (IQE LN) Apple investment in VCSELs highlights upgrade potential | ReNeuron Group (RENE LN) Interim results and IND approved to commence Phase IIb in stroke | Severfield (SFR LN) Significant Google contract confirmed | Synairgen (SNG LN) Revised terms with Pharmaxis | Tribal Group (TRB LN) Financial performance materially ahead | Vernalis (VER LN) Trading update highlights Tuzistra® XR run-rate below expectations
IQE AMS VER SNG IIP TRB SFR RENE
14 Dec 17
Funds raised to support VCSEL ramp-up
IQE has announced its intention to raise up to £95.1m (gross) through a placing of up to 67.9m new shares at 140p/share. The funds will enable IQE to expand capacity to support multiple VCSEL volume ramp-ups from FY19 onwards. We expect the share issue to be earnings neutral in the near term, and are encouraged by this signal of confidence from management as it prepares for the next step change in output.
14 Nov 17
N+1 Singer - IQE - Ramping up for 2019
IQE has announced a placing at 140p to raise c.£95.1m. The new funds will enable it to scale the business to take advantage of the growth opportunities in 3D sensing and other mass market opportunities. The group has also confirmed that if the current VCSEL ramp continues on its current growth curve, there is potential to exceed current FY’17 expectations. Our published bull case scenario shows the potential for 81% upgrades to FY’18 EPS and we believe this placing is indicative of demand for IQE’s products well in excess of our current forecasts. The new tools bought with the funds from this placing are unlikely to deliver material revenue until FY’19, however, we expect previously announced capacity increases to enable significant upgrades in FY’18. With continued strong newsflow likely we believe the shares remain attractive and retain our positive view on the stock.
10 Nov 17
Small Cap Breakfast
Clean Invest Africa—Introduction due around 14 Nov. Vehicle established to identify investment opportunities and acquisitions in renewable and clean energy projects/companies or alternative technologies that are used in a socially and environmentally responsible way that will aid the development of the African continent. City Pub Group - owner and operator of an estate of 34 premium pubs across Southern England. £30m raise. Consistent track record of strong revenue and EBITDA growth, with a three year CAGR from FY14 to FY16 of 34.9% and 44.8% respectively, and an EBITDA margin of 14.7% in FY16. Due late Nov. Offer TBA. Boku - Independent direct carrier billing company. Revenues were up 21% to US$10.2 in HYJun17. Q32017, revenues grew to $6.5m, up by 44%. The Company also saw continued growth across all of its key metrics: user numbers, total payment and a positive adjusted EBITDA for the month of September 2017. Due 20 Nov. Offer TBA. Ten Lifestyle Hldgs. Technology-enabled lifestyle and travel platform providing trusted concierge services to the world's wealthy. Net revenue increased from £20m in the year ended 31 August 2015 to £33m in the year ended 31 August 2017, a compound annual growth rate of 29%. Offer and date TBA. OnTheMarket—Intention to float on AIM to raise c.£50m which will be used to fund the growth of the OnTheMarket.com portal, already the third biggest UK residential property portal provider. Expected valuation £200m to £250m. OG Graphite, brownfield development-stage graphite company focused on the reactivation of its wholly-owned Kearney natural flake graphite mine and mill located 280 km north of Toronto, Canada. Offer TBA, expected mid November. Shefa Yamin minerals company focused on the exploration for precious stones in Northern Israel. Net Proceeds will be used to advance the Company's mining project. Offer TBA. Bakkavor—After being postponed on 3 November the provider of fresh prepared food has today set its offer price at 180p. Primary raise of £100m plus vendor sale in combination totalling 25% of enlarged capital. Mkt Cap c.£1bn. FY 16 Revenue: £1,763.6 million. FY 16 Adjusted EBITDA2: £146.4 million . Aviva Investors Secure Income REIT - Targeting £200m raise. Will invest in a diversified portfolio of high quality, long-lease commercial real estate assets located within the UK and leased to predominantly investment grade tenants. Due Dec. Cabot Credit Management -one of the largest credit management services providers in Europe and the market leader in the UK and Ireland with total 120-Month ERC of £2.2bn. Raising c.£195m. Offer TBA. Due November. M7 Multi-Let REIT—Intends to raise up to £300m at 100p. Aims to acquire and hold a portfolio of UK regional light industrial and regional office assets diversified by geography, asset type and tenants that is expected to generate stable income returns and, where appropriate, offer the potential to leverage and enhance returns through active asset management initiatives. Due 30 Nov. En+, international vertically integrated aluminium and power producer with core assets located in Russia. Priced at $14 per GDR. $1.5bn offer of which $0.5bn primary to pay down debt. Dual listing in Moscow. Unconditional dealings 8 Nov.
IQE REAT GPX MCC APPS BOIL CGH MBO IOG BRY
10 Nov 17
N+1 Singer - IQE - Unexpected historic US tax bill
IQE has announced that during the course of a routine US tax filing exercise, unexpected prior year taxes due of c.£4.2m have been discovered. The identified taxes date back to 2013, when the group acquired the epitaxy business of Kopin. As a result of the September ’16 group re-organisation, it is believed that no similar tax liability arises in 2017. Alongside this announcement the group has confirmed that the VCSEL ramp up in Q3 is on track, giving us confidence in our full year forecasts. We do not expect to make any material changes to estimates and remain positive on the stock, with multiple programs expected to drive significant upgrades to our FY’18 estimates and beyond.
20 Oct 17
N+1 Singer - Morning Song 20-10-2017
Dechra Pharmaceuticals (DPH LN) AGM statement confirms all in line | IQE (IQE LN) Unexpected historic US tax bill | PCI-PAL (PCIP LN) Continuing compliance with PCI DSS and new contract win | Renold (RNO LN) Forecasts trimmed to reflect H1 update | SDL (SDL LN) CMD highlights: Technology key to long term competitive advantage
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20 Oct 17
Photonics driving second growth wave
Towards the end of H117 one of the numerous development programmes for photonics applications that IQE has been working on moved to volume production. The programme, which we infer relates to 3D sensing in the iPhone X, potentially has a transformational impact on IQE’s performance. Until there is clarity on the rate of roll-out of the new phone however, our estimates, which are unchanged from the trading update in July, model a cautious ramp-up in IQE’s epitaxy sales. The share price is looking for performance substantially ahead of this, which our scenario analysis suggests is achievable. Importantly, even if demand for the iPhone X is muted, IQE is engaged in multiple photonics development programmes with the potential to generate transformational levels of growth.
18 Sep 17
N+1 Singer - IQE - VCSEL ramp up just the start
IQE’s trading update confirmed that it has secured multiple, multi-year contracts for VCSEL wafers, which we believe relate to 3D sensing opportunities, the most high profile of which is the 10th anniversary iPhone. We are upgrading our FY’17/’18/’19 EPS forecasts by 5%/6%/10% respectively however we believe these forecasts remain very conservative. Assuming a more optimistic level of adoption for the expected new iPhone results in a bull case scenario of 81% EPS upgrades in FY’18. IQE is one of our Key Buys for 2017, a stance which has served us well so far (+185% YTD). With forecasts conservatively struck and multiple additional near-term opportunities outside of Apple on the horizon, we believe the shares will continue to perform. We increase our target price to 147p and retain our Buy recommendation.
31 Jul 17
Start of mass market VCSEL ramp-up
IQE’s pre-close trading update notes a 16% year-on-year increase in wafer revenues in H117, driven by strong double-digit growth in photonics and currency tailwinds. Importantly, the photonics growth heralds the start of a mass-market ramp up in VCSEL (vertical cavity surface emitting laser) wafers for consumer applications, encouraging management to proceed with plans to substantially expand capacity ahead of anticipated demand in H218. We make modest upwards revisions to our estimates, noting the potential for further upgrades as there is greater clarity on photonics volumes.
26 Jul 17
Small Cap Breakfast
Touchstone Exploration— Oil exploration and production company active in the Republic of Trinidad and Tobago. Interests of approximately 90,000 gross acres. Production c. 1,300 boepd. Raising £1.45m. Expected mkt cap £7.5m. Due 26 June. I3 Energy –Schedule 1. Independent oil and gas company with assets and operations in the UK. Offer TBC, 7 June admission. Verditek— Schedule 1 update. On Admission, the Company's subsidiaries will be involved in advanced solar photovoltaic, filtration and absorption technologies specialising in providing environmental services. Issue price 10p. Admission in late June Tiso Blackstar Group—Schedule 1 update. Media, entertainment and marketing solutions group/ £160m mkt cap. Admission only. Expected late June. Vordere—RTO targeting German Property. Raising £9m at 17p. Readmission c. 15 June. Resiential Secure Income - social housing REIT raising up to £300m Admission due c.12 July. ScotGems—Admission due 26 June. Seeking £50-£100m. To investing in a diversified portfolio of Small Cap Companies listed on global stock markets DP Eurasia—Intention to float from the exclusive master franchisee of the Domino's Pizza brand in Turkey, Russia, Azerbaijan and Georgia . £20m primary raise plus a partial vendor sale. Film Finances—Sky News reports that ‘movie financing company with credits including the Hollywood hits La La Land and Nocturnal Animals is plotting a blockbuster premiere on the London stock market that will value it at several hundred million pounds.’ Expected ‘during the summer’. AIB—Intention to float from AIB, Ireland's leading retail and commercial bank . The Minister for Finance intends to sell approximately 25% of the Ordinary Shares of AIB. Prospectus and announcement of the price range due in mid-June 2017. Curzon Energy—Report on Proactive Investors of intended LSE float this year with acquisition of coal bed methane assets in Oregon. Looking to raise £3m plus. NLB Group—financial and banking institution based in Slovenia, with a network of 356 branches. Seeking Ljubliana Stock Exchange listing with GDRs on the LSE. Expected mid June. Flying Brands (FBDU.L)—Prospectus approved by FCA. RTO of Stone Checker Software, supplier of technology solutions in the field of kidney stone analysis and prevention. Has raised £550k at 3p. Subject to GM on 15 Jun. Kuwait Energy— $150m raise plus vendor offer. Admission due June. 2p reserves 810.0 mmboe
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12 Jun 17
N+1 Singer - IQE - FY’16 results prompt further upgrades
IQE’s FY’16 results are c.4% ahead of our expectations, which were upgraded in December. Group revenue grew 16% to £132.7m (N+1Se: 130.8m), with adj. PBT rising 17% to £20.6m (N+1Se: £20.4m) and adj. EPS up 15% to 3.0p (N+1Se: 2.9p). The key Wireless and Photonics markets grew strongly (up 15% and 43% respectively), while licence income outperformed expectations at £6.7m (N+1Se: £5.0m). We expect the positive momentum to continue, prompting c.5-10% EPS upgrades, although we see scope for more material upgrades over the course of our forecast horizon. IQE is one of our key picks for the year. The shares have risen 45% YTD but with today’s results triggering upgrades and further positive newsflow expected, we believe there is more to go for. Buy.
21 Mar 17
Photonics the star of the show
IQE’s diversification strategy delivered a 17% jump in adjusted profit before tax during FY16. Strong growth in photonics revenues was a key element of this improvement. This was boosted by a return to growth, albeit modest, in the wireless sector and weak sterling. We revise our FY17 estimates upwards to reflect the progress made on customer qualifications for photonics applications, and we introduce FY18 estimates.
21 Mar 17
Making Mobiles Better
Mobile phones are increasingly the key connection for the modern world. This means that the performance of mobile phones, and their networks, is going to become more critical for all the apps and businesses that rely on them. New technologies such as VR, AR, and AV will need better, more reliable connections to really move into the mainstream. In this thematic piece we attempt to identify some of the most important issues facing mobile phone networks and their users, and start to identify solutions and enablers that will solve these problems and create value by doing so.
IQE ALM BLTG FTC IMO IPO TERN IVO SAT
17 Jan 17
N+1 Singer - Small-cap quantitative research - Momentum screen refresh + 10 focus stocks
We have refreshed our momentum style screen for the first time since inception on 26 July 2016. As before, the screen selects the 25 stocks exhibiting the most extreme momentum characteristics, according to our measurement method. From these we have selected 10 to focus on. Since inception the screen has underperformed both the main small-cap and micro-cap indices against a background of generally rising momentum. We have noted a subset of the basket, where decelerating momentum at the time of measurement appears correlated with significant share price falls since selection. We shall monitor this factor with the new screen, albeit there are only two such stocks showing this pattern, namely Lamprell (not rated) and Gear4music (not rated).
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12 Jan 17
Photonics growth supports upgrades
IQE has announced that it will exceed current market expectations for both FY16 revenue and adjusted operating profit. This is primarily driven by strong growth in the photonics business, with a helping hand from sterling’s weakness, and highlights the benefits of IQE’s diversification strategy. We upgrade our FY16 and FY17 estimates, while maintaining a conservative stance and raise our valuation range from 40-45p to 45-49p.
16 Dec 16
N+1 Singer - Morning Song 14-12-2016
BOOHOO.COM PLC (BOO LN) Positive trading drives upgrades as hoped, PLT acquired for £3m | BURFORD CAPITAL LTD (BUR LN) A gorilla is born | IDOX (IDOX LN) Growth you can count on | IQE PLC (IQE LN) Strategic acquisition and strong FY results | NCC GROUP (NCC LN) FY’16 ahead of expectations | REDCENTRIC PLC (RCN LN) Weak FY’17 confirmed, underlying business sound
IQE IDOX RCN BOO NCC BUR
14 Dec 16
Photonics - the next growth wave
IQE’s ability to apply its epitaxial IP to multiple market segments enabled it to deliver strong profit growth during H116 as the business continues to diversify revenues. This diversification is set to continue, with technology innovations delivering strong growth in photonics applications and taking IQE into new segments such as the high-growth power electronics market. We see scope for further upward re-rating driven by continued growth in photonics sales.
21 Nov 16
N+1 Singer - IQE - Strong H1 with more to come
IQE announced a strong set of interim results on Tuesday with all business segments showing good growth. Wireless revenues grew 7% y-o-y, but the higher value Photonics segment continues to be the primary growth engine, up 45% y-o-y. Revenue diversification continues to increase, with non-Wireless sales now 31% of the group total. We make no major changes to our P&L forecasts, with the implied H2 weighting looking conservative going into the traditionally stronger second half. IQE shares have risen strongly since the trading update in July, but trade on just 9.6x Dec’16 PER which we believe remains attractive. We increase our target price to 35p (25% discount to international peers) and retain our Buy recommendation.
15 Sep 16
N+1 Singer - IQE - Photonics leading the way
IQE’s interim results show continued progress with growth in all business segments. Group revenue grew 18% y-o-y to £63.0m with adjusted operating profit up 61% to £10.8m. The Wireless segment grew 7% but strong growth elsewhere saw dependence on this market continue to reduce (now c.69% of revenue). Photonics continues to be the growth engine, with revenue up 45% in the period. While this rate of growth in Photonics may not be sustainable in the long term it leaves the group very well placed to meet our full year expectations. Good cash generation saw continued reduction in group leverage (net debt plus deferred consideration) although increased capex will result in an increase to our net debt expectations for the full year. The shares have performed well since the trading update in July but still trade on an FY’16 PER of less than 10x. We believe this remains attractive and retain our Buy recommendation.
13 Sep 16
Photonics - light from a rising star
IQE’s diversification strategy has delivered a 71% jump in adjusted profit before tax during H116. Strong growth in photonics revenues was a key element of this improvement. This was boosted by a return to growth, albeit modest, in the wireless sector and contribution from licence income. We leave our estimates broadly unchanged, noting that this further confirmation of growth through diversification should support a continued upwards re-rating of the shares.
13 Sep 16
Revenue diversification driving growth
IQE’s ability to apply its epitaxial IP to multiple market segments is expected to deliver year-on-year revenue growth of over 15% for H116. In yesterday’s trading statement, management states that the group is on track to achieve full-year expectations. We leave our estimates unchanged, noting that this confirmation of growth through diversification should help catalyse an upwards rerating of the shares.
21 Jul 16
Strong momentum in Infrared
IQE has announced that during March it has received record volume purchase orders, worth just over $3m, in its Infrared division. This follows on from the $3.7m Infrared purchase order from a leading global substrate manufacturer in January. Separately the group has announced that it has joined a €15m project to establish a mid-infrared photonics supply chain. The project will be funded by the EU Horizon 2020 program and the Swiss Government and IQE will provide a volume source of mid infrared laser epitaxial wafers. IQE has a leading position in the Infrared market and we expect steady growth over the medium term, however revenue declined c.4% in FY’15 due to the lumpier nature of the market. We are encouraged by the strong start to FY’16 and believe our FY’16 forecasts are well underpinned. The shares are trading on an FY’16 PER of 7.6x but we believe there are multiple catalysts for a re-rating. We retain our 29p target price and Buy recommendation.
19 Apr 16
Momentum building into 2016 and beyond
IQE’s final results last week highlighted the increased diversification within the business. Well documented weakness in the smartphone market resulted in a contraction in Wireless revenue. In previous years this would likely have resulted in the group missing expectations but increased diversification allowed it to make up for the shortfall elsewhere. Group revenue grew 2% to £114.0m (N+1Se: £117.8m) with adjusted operating profit growing 8% to £19.0m (N+1Se: £19.2m). We make no material changes to our FY’16 and FY’17 forecasts and introduce FY’18 forecasts showing 18% EPS growth. The shares trade on just 7.4x FY’17 PER but we believe there are multiple catalysts to drive a re-rating. We retain our 29p TP (10x FY’16 PER), Buy.
29 Mar 16
Full year results highlight strength in depth
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.
22 Mar 16
Major Wireless customer renewal underpins FY’16 forecasts
IQE announced at midday yesterday that it had successfully renegotiated its long-term supply contract with its premier Tier 1 customer, for the supply of wafer products used in wireless applications. The group estimates that the contract will contribute more than $55m of revenue during FY’16. The renewal of this contract is not a surprise given IQE’s market share in Wireless and strong customer relationships, but we view the expected size of the contract in FY’16 as a positive, given recent Wireless market commentary. The shares have rallied from their December lows but still sit on an FY’16 PER of just 7.4x. We continue to view this as attractive given the group’s market position, increasing revenue diversification, high margin revenue streams and medium term growth potential. We retain our 29p target price and remain at Buy.
12 Jan 16
Boohoo.com (BOO LN) On track to deliver FY forecasts as top line growth strengthens | Cineworld Group (CINE LN) In line YE update, we downgrade to Hold | Debenhams (DEB LN) Shares should bounce on successful completion of 3-peak challenge | First Derivatives (FDP LN) Acquisition of Kx consulting business | Greggs (GRG LN) Tricky Q4 successfully navigated to deliver an in line FY15 | IQE (IQE LN) Major Wireless customer renewal underpins FY’16 forecasts | Minds + Machines Group (MMX LN) Acquisition of .boston | Premier Technical Services Group (PTSG LN) In line conclusion to impressive first year post IPO
IQE BOO CINE DEB FDP GRG MMX PTSG
12 Jan 16
Diversification combats wireless volatility
IQE's confirmation that full year results are expected to be in line with expectations, despite broadening weakness in wireless, was encouraging. This reflects both the progress the company is making in diversifying its revenues and its more measured approach to setting expectations. With the company's rating at a substantial discount to its peers, we believe this continued progress should justify an upward re-rating in the shares.
21 Dec 15
BLUR GROUP PLC (BLUR LN) CFO joins Board | Brewin Dolphin Holdings (BRW LN) Moving to HOLD following performance post-Finals | Domino's Pizza UK & IRL (DOM LN) Germany – short-term fix but mid-long term growth expectations lowered | Ergomed (ERGO LN) Co-development update: clinical data expected in 2016 | Futura Medical (FUM LN) Extended shelf life for CSD500 achieved: regulatory filing imminent | IDOX (IDOX LN) Stable outlook in all markets; £100m sales target | IQE (IQE LN) Full year in line, as expected | Marston's (MARS LN) Solid double-digit TSR proposition | N Brown Group (BWNG LN) Risk from unseasonably warm weather reflected in downgrade | Skyepharma (SKP LN) Positive development with EXPAREL®
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16 Dec 15
Further progress expected
IQE shares have fallen c.25% over the last two months on fears that softer conditions in its core Wireless market will impact on the full year results. With three weeks of the year to go we believe these fears are overdone and leave our forecasts unchanged. As we noted at the interim results in September, the H2 weighting in our forecasts is in-line with a typical outcome for the group. Additionally the £2m IP licence relating to the Cardiff University joint venture gives us confidence that the group can meet our profit forecasts in spite of any weakness in the Wireless market. IQE has consistently shown its ability to manage its cost base and deliver profit growth through the cycle, and has made good progress in growing non-Wireless revenues. The shares are now trading on a Dec’15 PER of just 7.4x falling to 6.6x in Dec’16, which we feel is highly attractive given the group’s market position, high margin revenue streams and medium term growth potential. We retain our 29p target price and Buy recommendation.
10 Dec 15
IQE’s licence agreement with Translucent has the potential to accelerate its developments and secure key IP in the high-growth GaN on silicon market. While at the revenue level the company’s transformation to a more diversified compound semiconductor business still has some way to go, its pathway is becoming clearer. With continued execution along this path, we believe the share should rerate upwards from its lowly 9x P/E rating.
29 Sep 15
IQE’s interim results last week were in-line with expectations and our forecasts are unchanged. These imply a c.55% H2 revenue weighing in the current year, which is in-line with a typical outcome. Whilst we cannot rule out current macro pressures resulting in an inventory correction later in the year, customer forecasts are currently following normal second half patterns and we believe the group are on track to meet full year expectations. We increase our target price to 29p (from 25p) representing 10x FY’16 PER. We see scope to increase this rating as revenue diversification improves and the medium term growth opportunities begin to impact numbers. Buy.
21 Sep 15
Abzena (ABZA LN) AGM update: strong momentum in services revenue and licensing | Carador Income Fund (CIFU LN) August lull proves a tough month for US CLO equity | Digital Globe Services (DGS LN) Strong recovery; dividend + buyback | IQE (IQE LN) Progress continues | Summit Therapeutics (SUMM LN) Positive pre-clinical data on SMT19969
IQE ABZA DGS SUMM
21 Sep 15
Solid H1 paves the way for another good year
IQE’s interim results were largely flagged at the trading update in July. Revenue grew 2% to £53.2m (H1’14: £52.0m) with adjusted operating profit and fully diluted eps both up 5% at £6.7m and 0.9p respectively. Net debt improved to £31.1m. Customer forecasts are currently following normal second half patterns, leaving the group on course to meet our full year forecasts. Separately the group has announced an exclusive licence and option agreement to acquire Translucent Inc’s Compound Semiconductor on Silicon technology. IQE will pay a maximum of $1.5m for the licence with an option to purchase the technology for $5m within the 30 month licence period. We believe the Compound Semiconductor on Silicon market represents a significant medium term opportunity for IQE and welcome the move to expand its technology in this area.
15 Sep 15
CLOUDCALL GROUP PLC (CALL LN) | IQE PLC (IQE LN) Solid H1 paves the way for another good year | MIDATECH PHARMA PLC (MTPH LN) A golden opportunity | RENEURON GROUP (RENE LN) Funded to H1 2019 | RESTORE PLC (RST LN) First step in restoring confidence | WILMINGTON PLC (WIL LN) Full year slightly ahead and good outlook for FY16
IQE MTPH RST CALL WIL RENE
15 Sep 15
Stable wireless with Photonic upside
IQE’s trading update reported stable revenues with 2% growth y-o-y and strength in Photonics due to numerous end-market drivers. Total revenue growth was slightly held back by temporary production disruption at one of its customers, but this has now been solved and Q3 has had a good start. The stable performance should alleviate fears of a revenue collapse caused by silicon PAs displacing compound semis in the important mobile phone market, which increasingly appear to be unfounded.
28 Jul 15
Steady progress in H1
IQE has released a trading update for the six months to June 2015. Group revenue grew 2% in the first half, in-line with our expectations. Adjusted operating profit of £6.7m and EPS of 0.9p are also broadly in-line with our forecasts (N+1Se: £7.0m and 0.94p respectively). Net debt was slightly better at £31.1m vs our £32.2m forecast. The expected stabilisation in the wireless market has occurred with strong growth expected in the second half and the photonics business has continued to perform well. H2 is reported to have started well and we leave our full year expectations unchanged.
20 Jul 15