Bulls claim to be delighted. Having issued a shocking profits warning on June 21, IQE plc (IQE) has served up half year numbers which reconfirm full year guidance. There is no follow up profit warning. Well not yet. But bears have real reasons for cheer. Having stated in June that it could operate within its existing £27 million overdraft into Q1 2020, we see now that the company has secured an additional £30 million asset financing (expensive debt). Ok, no bailout placing pro tem but a sign that cash continues to be burned.
The guidance for H1 sales was £65-£68 million (after the June warning). Sales came in at £66.7 million and we are told that FY (calendar 2019) sales guidance remains unchanged at £140-160 million. Consensus on Bloomberg is £159 million as Matt Earl pointed out last week. That number will surely come down. H1 adjusted EBITDA (adjusted bullshit earnings ) collapsed from £13.5 million to £7.4 million but the profit before tax went from £6.6 million to a negative £3.7 million. While the company blathers on about how cash generated from operations was £4 million (£7.6 million) this is patent bull. For starters, it excludes £4.7 million of capitalised expenditure. Then there is capex which - as ever - seems less than discretionary and alarmingly high at £19 million. The bottom line is that ( if one excludes £46 million of lease commitments) the company moved from net cash at December 31 of £20 million to net debt of £1 million ( including debt of £12 million). Why any company opts to have expensive debt of £12 million while sitting on cash earning bugger all of £11 million is a mystery or put another way, a Red Flag.
The bottom line is that £21 million was spunked in H1 and the company would clearly have burst through its overdraft limit before Christmas without the new facility. It is telling that we are NOT told today the current net debt position. In terms of FY bullshit EBITDA guidance we are told that “EBITDA margins will remain low in FY19 as the utilisation of facilities remains low versus capacity and a high number of product qualifications continue. Full year adjusted operating profit margin guidance, whereby IQE expects to remain profitable in 2019 but with adjusted operating profit margin significantly below the original FY19 guidance of over 10%, is reiterated.”
As Matt noted, the current consensus forecast margin is 9.9%. Surely that is too high and so this is another reason why profit forecasts are too high. In terms of profit (well adjusted bullshit earnings) we are told “Second half revenues are expected to represent between 52% and 58% of full year revenues. As such, given the additional contribution against a largely fixed cost base, a return to adjusted operating profitability is expected in H2. This will be strengthened by cost management actions that support the strategic direction of the Group.” I am not so sure but, with a capex bill of £20 million likely in H2, I’d bet the ranch that even as things stand net debt will be materially higher at Christmas than it is now and the debt number will be close to if not above £30 million (hence the need for the new facility). But it could be worse still. IQE notes:
Three key factors affect IQE's revenue outlook for 2019
As things stand IQE reiterates its sales guidance with these factors taken on board but I suggest that evidence from industry peers suggest the risks on 1 and 2 are very much on the downside and so there is a very real danger that IQE will have to revise guidance downwards again. The failure to formally update on trading since June with hard numbers or even an indication of whether it is profitable or not is telling. My guess is that if IQE has to warn again (which I believe it will) it will head deep into the new bank facility and that may prompt its main lender HSBC to throw a wobbly and demand a placing. That risk is far from discounted in a share price of still around 50p valuing jam tomorrow very generously at not far off £400 million. Sell.
Filed under: IQE, Mobile Streams, Halfords, ProPhotonix, President Energy, Sabien Technology
RISK WARNING & DISCLAIMER - FiveFreeShareTips.com tips are provided by independent authors via a common carrier platform and do not represent the opinions of FiveFreeShareTips.com. FiveFreeShareTips.com does not accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at FiveFreeShareTips.com and via emails you receive from [email protected] are for your general information and use and are not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by the tipsters or FiveFreeShareTips.com and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Trading shares involves the risk of loss. The tipsters and FiveFreeShareTips.com shall not be liable for any losses or other damages incurred. The value of investments can go up or down and the past is not necessarily a guide of future performance.
Well actually it will be six. One every week day and one on Sunday, each landing with you at 11 AM sharp.
Unlike other services (which may always have a vested interest) we pride ourselves on our impartiality and cover all small caps including AIM. the Standard List, The Wider Main Market and NEX.
We cover small caps, penny shares, FTSE 350 stocks and blue chips. We look for red hot penny shares, Warren Buffett style value investments with yield and growth stocks. There is no technical analysis in our work just solid fundamental analysis from a team of experts with decades of stockmarket experience.
You will not agree with all we publish but if you are interested in small caps you cannot afford to ignore it either. Yo'll never be charged for the free share tips from Five Free Share Tips and given the star writers involved you know that they will move share prices.
There's no telephone number or postal address required and there is no charge, ever, for your Five Free Share Tips membership. Just free shares tips every day apart from Saturday And each day's share tip will not just be a few thoughts cobbled together but will be detailed analysis from experts.
Our experts do not just earn their living from writing. All own shares. If they own shares in a stock they cover they will declare it and will not sell until after advising a sell to our readers. And why not our tips are so good that why shouldn't our readers put their money where their mouth is?
Don't just take our word for it! Judge us on the calibre of our free share tips and join today to start receiving them from September 1 2017. If you don't like what you get delivered to your inbox unsubscribe and you will never hear from us again. So why not give it a go? Sign Up Now
We've put together a panel of top tipsters, including:
Tom Winnifrith, in his 27th year writing about shares, noted fraudbuster & dubbed "The maverick Tipster"
Chris Bailey, City whizz kid turned financial guru, rated as one of the top 50 commentators on shares on twitter, founder of Financial Orbit
Steve Moore, has worked with Tom Winnifrith for all bar 3 weeks of his working life - a noted commentator on value stocks
Malcolm Stacey, The Grandfather of Share Blogging, the founder of ShareCrazy & a best selling autthor of stockmarket books
Lucian Miers, the Bard of the Boleyn, one of the UK's best known short sellers
Gary Newman, writes about value investing on AIM, speciality is in share tips on oil and mining companies
Nigel Somerville, The Deputy Sheriff of AIM, an expert in forensic analysis a skill used to bust frauds but also to tip true value investments
The team from HotStockRockets, specialising in AIM and small cap shares which will fly on a three month view
Remember to book your place at the UK Investor Show 2018. The UK’s top investment show taking place on Saturday 21 April 2018 at the Queen Elizabeth II Conference Centre in Westminster, London. The show will feature a unique line-up of top speakers including Nigel Wray, tech queen Vin Murria, Dave Lenigas, Mark Slater, Tom Winnifrith, Adam Reynolds, Ed, Croft, Nick Leslau Luke Johnson and Dr Johnny Hon as well as 135 exhibiting small cap companies.
The hot share tips given here are of necessity, general. They cannot relate to the individual circumstances of investors. Anyone considering following the share tips contained here should seek independent advice from a Financial Conduct Authority authorised Stockbroker or Financial Adviser. We cannot be held liable if individuals suffer losses through following share tips contained on this site or emailed out as free share tips. The value of investments can go down as well as up. The past is not necessarily a guide to future performance. Investing in shares can lose you part or all of your capital although the potential returns are theoretically unlimited. The difference between the buy share price and the sell share price for smaller company shares (penny shares) can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Some of the shares recommended on this site will be smaller company shares. By their nature such investments can be relatively illiquid and thus hard to trade. And that makes such investments more of a high risk than larger company shares (or 'small caps'/'penny shares'). FiveFreeShareTips.com & its sister site ShareProphets.com defines a smaller company share as any stock traded on AIM or NEX or which has a market capitalisation of less than £300 million.