Global semiconductor component supplier,IQE(LSE: IQE) is falling today, after the company reported a first half pre-tax lossfor the six months to 30 June 2014.
Down around 10% at time of writing, IQEs shares have reacted badly to todays news, although after reading through the results, I feel as if the market has overreacted.
Indeed, for the first half of the year IQE reported a pretax loss of 2.3m, compared to profit of 2.5m the previous year. However, the groupnoted that its reported pre-tax loss included 4.8m non-cash exceptionals and 3.1m of restructuring costs. On an adjusted basis, after removing restructuring costs, the groups pre-tax profit rose by 11% during the period to 5.6m, from 5.1m as reported last year. Adjusted earnings per share increased to 0.86p, from 0.79p.
That being said, IQE did report a fall in revenue for the period, from 63m as reported a year ago, to 52m. Management blamed this reduction on an industry-wide inventory reduction and the strongsterling to U.S. dollar exchange rate. Net debt for the period rose by 1.1m to 35.5m.
Commenting on the results,Dr Drew Nelson, IQE Chief Executive, said:
The Group has again demonstrated the resilience of its business model through the delivery of continued growth in profitability despite the lower than expected revenues resulting from adverse effects of a significant inventory correction in the wireless industry and the translational effect of a strengthening of the sterling exchange rate against the US DollarHaving established a world-leading position in the wireless communications market, IQE is beginning to replicate this across our other markets
Plenty of good news
Aside from todays profit warning, IQE is making solid progress across all of its markets. In particular, despite the de-stocking, which affected the majority of the semiconductor industry, IQE managed to achieve a 22% increase in Photonics revenue during the period. Photonics areopto-electronic products spanning a wide range of consumer and industrial applications such as infrared sensing and solar applications.
Whats more, IQEhas history on its side, with 25 years oftechnology leadership with a rich heritage of intellectual property andunparalleled economies of scale.All in all, IQE is well placed to grow and City analysts are expecting a return to growth after todays speedbump.
For example, on an adjusted basis, excluding restructuring costs, City analysts expect IQE to report earnings per share of 2.22p this year, which means the company is trading at a forward P/E of 9. Further, the City has earnings per share growth of 14% pencilled in for next year. As a result, IQE is trading at a 2015 P/E of 7.9.
A P/E of 7.9 looks cheap for a company thats expected to report double-digit earnings growth.
Still, only you can decide if IQE fits in your portfolio, and as usual, I strongly advise that you do some further research before making any trading decision.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.