IQE Plc – Value Analysis (LONDON:IQE) : December 19, 2017

Capitalcube gives IQE Plc a score of 75.

Our analysis is based on comparing IQE Plc with the following peers – CML Microsystems Plc, Nanoco Group PLC, Frontier Smart Technologies Group Limited, Ceres Power Holdings plc and PV Crystalox Solar Plc (CML-GB, NANO-GB, FST-GB, CWR-GB and PVCS-GB).

Investment Outlook

IQE Plc has a fundamental score of 75 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (6.03).
  • IQE-GB outperforms its peers with a relatively high operating performance and the market also expects faster growth relative to its peers
  • IQE-GB has relatively high profit margins while operating with median asset turns.
  • Changes in annual revenues are in line with its chosen peers but lags in terms of earnings suggesting that the company is less cost conscious and may be spending for growth.
  • IQE-GB‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s median gross margin and relatively high pre-tax margins suggest non-differentiated product portfolio but with tight cost control relative to peers.
  • While IQE-GB‘s revenues have increased slower than peer median, the market currently gives the company a higher than peer median P/E ratio and may be factoring in some sort of a strategic play.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • IQE-GB has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

IQE-GB has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 7.65% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 0%), and a well-cushioned interest coverage level of 9.46x, IQE-GB can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 5 chosen peers for the company, only 1 of the stocks have an outstanding debt balance (including FST-GB). Companies with no debt include CML-GB, NANO-GB, CWR-GB and PVCS-GB.

IQE-GB has maintained its Quick & Able profile from the prior year-end.

  • IQE-GB‘s interest coverage is greater than (but within one standard deviation of) its four-year average interest coverage of 8.28x.
  • The decrease in its interest coverage to 9.46x from 11.24x (in 2015) was also accompanied by a decrease in its peer median during this period to 504.23x from 505.12x.
  • Interest coverage fell 0.89 points relative to peers.
  • IQE-GB‘s debt-EV is its lowest over the last four years and compares to a high of 24.46% in 2014.
  • Though its debt-EV decreased to 7.65% from 19.61% (in 2015), its peer median remained relatively stable during this period at 0%.
  • Relative to peers, debt-EV fell 11.95 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
CML Microsystems Plc 0 3.23 No interest exp 999
Nanoco Group PLC N/A 5.92 No interest exp -46881.25
Frontier Smart Technologies Group Limited 8.79 1.28 -4.78 60.99
Ceres Power Holdings plc 0 8.27 No interest exp 999
PV Crystalox Solar Plc 0 12.77 -1217.24 999
IQE plc 7.65 1.63 9.46 58.97
Peer Median 0 4.57 504.23 530
Best In Class 7.65 12.77 No interest exp 999

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Company Profile

IQE Plc is a holding company, which engages in the development, manufacture, and sale of advanced semiconductor materials. It operates through the following segments: Wireless, Photonics, Infra Red, and CMOS++. The Wireless segment includes mobile phones, smartphones, mobile networks, Wi-Fi, smart metering, satellite navigation, and a plethora of other connected devices. The Photonics segment covers applications the either emit or detect light. The Infa Red segment consists of antimonide, and gallium antimonide engineered materials. The CMOS++ segment combines the advanced properties of compound semiconductors with silicon. The company was founded in 1988 and is headquartered in Cardiff, the United Kingdom.

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