Semiconductor wafers manufacturer IQE (LON: IQE) is raising £30m at 20p a share and could generate up to £3m more from a REX retail offer. The $35m bank facility has been extended until May 2026, so IQE is in a good position to weather the tough trading and benefit from the upturn.
Net debt was £15.2m at the end of 2022, rising to £24m at the end of March 2023. The fundraising was announced at the end of the trading day. The share price dipped 0.25p to 23.5p, but there could be a further reaction tomorrow morning.
The REX retail offer closes at 5pm on 18 May. The intermediaries involved are interactive investor, AJ Bell and Hargreaves Lansdown, although there could be additional brokers applying to become involved.
Once an application has been made and accepted it cannot be withdrawn. The minimum subscription is £50.
Cash
The semiconductor sector has been hit by a downturn due to destocking. Orders have been lower than anticipated and AIM-quoted IQE requires the cash to shore up its balance sheet.
IQE is a specialist in the niche market for epitaxial compound semiconductor wafers, which are used in smartphones, lasers and infrared devices. The wafers can incorporate special materials. Because of the initial investment made in production capacity fixed costs are high.
This is also a highly cyclical business. Wireless revenues fell last year and for the first time revenues from photonics were larger.
In 2022, group revenues grew by 9% to £167.5m, while the loss jumped from £22.2m to £75.4m. That includes £68.5m of impairment charges, up from £7.4m the previous year.
New capital spending in existing markets will be below depreciation. Labour costs are being reduced by 10% and other overheads should fall by 7% this year.
IQE is focusing its development spending on newer markets, such as power electronics and MicroLED display. There will be four new Gallium Nitride reactors installed between 2023 and 2025. He deployments will be based on customer-funded product development. This year’s investment will be £8.3m.
First half revenues are expected to be between £50m and £56m. Second half revenues are expected to grow.
IQE should be coming to the bottom of its cycle. It is getting to the point where the shares are an attractive recovery buy if investors take a two or three year view.