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IQE's track record of growth will continue, Peel Hunt says as it upgrades stock to 'buy'

Published: 20:57 22 Mar 2017 AEDT

semi-conductor
Peel Hunt has raised its earnings estimates for IQE in 2017 and 2018

The stars are aligning for IQE plc (LON:IQE) after the semiconductor firm reported full year profit and revenue growth, Peel Hunt said in a note to investors today.

The company yesterday reported a 16.4% increase in revenue for the year ended 31 December to £132.7mln, compared to £114.0mln the previous year, driven by growth in its photonics business. The group also achieved revenue gains in its wireless and infrared divisions.

Adjusted pre-tax profit increased 17.4% to £20.6mln from £17.6mln.

WATCH Zak Mir on IQE

Peel Hunt upgraded the stock to ‘buy’ from ‘hold’ and raised the target price to 60p from 35p following the results.

“The tripling of the share price in the last year is justified by a reversal of the revenue decline in wireless and a 30% like-for-like increase in photonics revenue,” Peel Hunt analyst Andrew Shepherd-Barron said.

“We believe there is more to come from photonics, and with other big opportunities also making progress, several developments could be coming good in the next 1-2 years.”

The photonics business accounted for 17% of group revenue. Wireless, which represented 72% of group revenue, reported a 4% increase in like-for-like revenue following two years of volume declines as 2G products reached end of life.

Barron said the company’s 15% increase in adjusted fully diluted earnings per share (EPS) to 3.0p was ahead of expectations.  Subsequently Peel Hunt has upgraded its EPS estimate for fiscal year 2017 to 3.1p from 2.9p and hiked its forecast for 2018 EPS to 3.4p from 3.2p. The broker said IQE’s track record of growth will continue into the future.

“IQE has now proven that its market leadership translates into profitable growth, with EBIT margins of 30% in Photonics and 20% in Infra Red, and there is no reason to think that if revenue takes off as we hope, it will not be sustained."

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