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.
While trading was strong in multiple markets throughout FY16, with wireless revenues returning to growth, photonics remains the fastest growing business. The two key applications: vertical cavity surface emitting lasers (VCSELs), which are used in data communications, consumer and industrial applications; and indium phosphide (InP), which is used in fibre to the premises and other short-haul optical networks, are experiencing strong demand. Revenues also benefited from weakness in sterling throughout FY16. We raise our FY16 revenue and profit estimates to reflect these positive factors.