Why Shares In IQE plc Plummeted Today

IQE plc (LON: IQE) announces revenue drop, but profitability increases on cost efficiencies.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 22 July, 2014 9:59 am BST

| More on: IQE

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What:

Shares of IQE (LSE: IQE) slid by more than 10% in early trade after the firm, which supplies semiconductor wafer products, announced a steep fall in revenue in the first half of the year. Revenues were impacted by a soft handset market and the strength of sterling. The board therefore expects first-half revenues of around £52m from £63m a year earlier.

So what:

IQE said it is still on track to achieve full-year expectations and the business remains “in good shape”. While revenue is down, profitability has improved through efficiency gains and economies of scale. Expected EBITDA is £11m, up 5% on 2013. Net debt (£36m) didn’t see an increase as a result of costs associated with reorganising and restructuring of around £6.5m. The group invested £2m during the first half of the year to deliver synergies through a strategic inventory build.

Now what:

Looking further ahead, the chief executive Dr Drew Nelson said, “we have also made technical and commercial progress with our GaN development”. IQE, he added, is “well positioned to enjoy a transition to volume production in the next two to three years.” The share price is down 22% in the last twelve months, and I’ll leave it to you to decide if now is a buying opportunity.