Canaccord Genuity lowers IQE to 'hold'

Canaccord Genuity stated that given IQE's "uninspiring growth and profitability outlook", it was now opting to move to the sidelines on the stock, as although the shares' 2x enterprise value/sales ratio was "undemanding" and sitting towards the lower end of the historic range, with UK investors being "spoiled for choice" in better relative value in more "predictable and profitable" software and tech-enabled services names, it chose to downgrade the stock and lower its target price from 55.0p to 43.0p.

The Canadian bank said in a strong semiconductor demand and 5G growth environment, IQE's soft revenue performance remained "somewhat puzzling" to its analysis, suggesting "meaningful value share loss" to Asian compound wafer competitors over the last 12+ months.

"Reversing this will not be an easy task for the new CEO whose strategic options (M&A, additional growth investments) are somewhat constrained by a tight balance sheet with £12-15m of net debt and negative free cash flow expected this and next year," said Canaccord.