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Market Update: How Australian Markets Performed on April 20, 2020: A Brief Look

  • April 20, 2020 09:25 PM AEST
  • Team Kalkine
Market Update: How Australian Markets Performed on April 20, 2020: A Brief Look

The British and European markets inched higher today (before the market close on 12th June 2020) despite the update regarding shrunk in Britain’s economy by 20.4 per cent in April from March, as the battered cyclical shares gained.

Gold MTF non-AMP

The following factors have been playing a critical role in impacting the market sentiments today:

  • The Bank of England stated that the UK public’s average estimate for inflation in five years plunged to 2.6 per cent in May, lower since the survey began in 2009.
  • The resurgence of COVID-19 cases in the US could stunt the pace of economic reopening.
  • The bleak economic outlook by Federal Reserve indicated towards slow recovery as unemployment rate to remain 9.3 per cent by the end of 2020.
  • UK house prices touched a 10-year low.

As it is evident that the technology stocks have been relatively resilient during the pandemic, we are going to review two technology stocks - IQE PLC (LON: IQE) and 1Spatial PLC (LON: SPA) and see how they have been navigating through the economic turbulence. As on 12th June 2020 (before the market close at 10.38 AM GMT+1), both the stocks (IQE and SPA) shown remarkable gains and were soaring around 27.00 per cent and 15.33 per cent, respectively. The investor sentiments are certainly upbeat for these two stocks as the IQE PLC released its trading update today, while the 1Spatial PLC won the contract of USD 2.6 million with the US State of Michigan.

IQE PLC (LON: IQE) – Resilient in the context of short-term uncertainty as it is a critical part of the global technology supply chain.

IQE PLC is a FTSE AIM UK 50 index listed Company, which provides wafer services and advanced wafer products to the semiconductor industry. The Company’s primary business is developing and manufacturing of epiwafers or compound semiconductor wafers, by using the process called epitaxy. The Group is catering to upcoming 5G infrastructure deployments with its technologies and platforms. It has been admitted to trading on the London Stock Exchange since 30th September 2003.

The Company is expected to release its half-yearly 2020 results in September 2020.

(Source: Presentation, Company Website)

Synopsis of Recent Regulatory Updates

12th June 2020: The Company’s production has not been affected despite the significant disruption and hence, Q1 revenue was slightly ahead of expectations.

6th May 2020: The Group achieved a Gold Tier Award for catering to BAE Systems' Electronic Systems sector, with exceptional performance which contributed significantly to supply chain.

Trading Update – Expect to Return to Profit, Despite Unprecedented Crisis Created by COVID-19 Pandemic

On 12th June 2020, the Group provided a trading update for the half-year ending 30 June 2020. In the first quarter of 2020, the revenues were marginally ahead of internal anticipation, while trading in the second quarter of 2020 to date has been robust in both the Photonics and Wireless Business Units. Additional Highlights are:

  • IQE’s production has not been affected to date, despite the substantial risk of disruption posed by the COVID-19 pandemic.
  • For the first half of 2020, the semiconductor company expects total revenues to be at least GBP 85 million, representing an increase of more than 27 per cent as compared with the corresponding period of the last year (H1 FY19).
  • With a low single-digit adjusted operating profit for the first half of 2020, the Group assumes that it will return to profitability.
  • In H1 FY20, the firm expects to be cash generative due to existing trading performance. The Group also expects a decrease in capital expenditure.
  • Therefore, the net debt has reduced since year-end FY19, headroom on IQE’s credit facilities has increased, and liquidity stays robust.

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 12th, 2020, before the market close

IQE’s shares were quoting at GBX 48.70 on 12th June 2020 (before the market close at 1:05 PM GMT+1). Stock's 52 weeks High is GBX 79.62 and Low is GBX 18.86. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 318.06 million.

Business Outlook

Due to the economic impact of the pandemic, the Group expects the possibility of some level of inventory adjustment in H2 FY20 and the smartphone handset market is projected to reduce year-on-year in 2020. For 5G handsets, IQE has opportunities in both Wireless Power Amplifiers and 3D Sensing, which increase the amount of compound semiconductor content per handset. The deployment of 5G communication infrastructure is showing signs of substantial growth, and the demand for the Group’s products will increase in the US Military market. As per the challenging environment, IQE is unable to provide guidance for the full year. It is possible that revenues could fall in the second half but equally possible that current levels of demand will continue. Meanwhile, the business appears to be resilient, and its services are considered as critical manufacturing in several countries.

1Spatial PLC (LON: SPA) – Operating with a decent order book of contracted future revenue.

1Spatial PLC is a FTSE AIM All-Share Company, which is engaged in the development and sale of IT software along with associated services regarding consultancy and support. It provides business-focused applications for managing geospatial data and location. The Company is headquartered in the United Kingdom, with operations in the United States, Ireland, United Kingdom, Belgium, France, Australia, and Tunisia.

(Source: Annual Report, Company Website)

Recent Significant Developments of 2020

12th June 2020: The Company announced a multi-year contract for USD 2.6 million with the US State of Michigan for providing data management solutions. The contract comprises nearly USD 1.5 million of services to be rendered in the first two years, while another USD 1.1 million of software licences, to be realized over the five years.

11th June 2020: Regarding the current trading environment, the Company stated it has responded swiftly to COVID-19 by accessing addition corporate facility, business resilience with a diverse customer base, having operations in multiple geographies and 41% of revenue being recurring in nature.

Financial Highlights – Increase in Full Year Revenue, Due to New Customer Wins

On 11th June 2020, the Company provided the results for the year ended 31 January 2020, with growth in revenues of 33% to GBP 23.4 million (FY19: GBP 17.6 million) and an increase of 167 per cent in adjusted EBITDA. Thus, trading in the new financial year 2021 has been in line with Board’s anticipations. Some additional highlights are stated below:

  • Recurring revenues for FY20 grew 30 per cent to GBP 9.6 million (FY19: GBP 7.4 million), representing 41 per cent of group revenue (FY19: 42 per cent), providing robust visibility for the Company.
  • Loss after tax increased to GBP 1.5 million from GBP 1.4 million in FY19, with the overall loss for the year abridged from GBP 1.7 million in FY19 to GBP 1.5 million in FY20.
  • The mapping software Group closed the financial year 2020 with a healthy cash and cash equivalent balance of GBP 5.1 million, with a net of loans at year-end of GBP 3.9 million (31 January 2019: GBP 6.4 million cash and cash equivalents, with no loans).
  • 1Spatial was free cash flow positive in H2 FY20, notwithstanding some delay in cash collection at year-end, and exceptional cash outgoings relating to the integration and acquisition of GI, representing a positive progression.
  • The Group reported new customer wins in all geographies, with land and expand strategy driving the continued development of current client engagements.
  • It has responded swiftly to Coronavirus, supporting customers remotely and moving to remote working across all operations.

(Source: Final Results, Company Website)

Share Price Performance Analysis

(Source: Refinitiv, Thomson Reuters) -1-Year Chart as of June 12th, 2020, before the market close

SPA’s shares were quoting at GBX 26.00 on 12th June 2020 (before the market close at 1:03 PM GMT+1). Stock's 52 weeks High is GBX 36.50 and Low is GBX 13.00. Total outstanding M-Cap. (market capitalization) stood at approximately GBP 25.15 million.

Business Outlook

The Group witnessed a healthy sales pipeline; however, the timing of new sales is hard to expect, and decision-making is likely to be protracted in the current environment. As per the challenging environment, SPA withdrew its guidance for FY21. The Company has surged the access to funding from the corporate lenders by GBP 1.8 million (with a further GBP 0.3 million projected to be secured in June 2020). 1Spatial has abridged expenditure through the reduction in ad hoc spend and deferment of pay-rises. It also maintains tight control of costs. The Group has a robust balance sheet, with a wide range of customers in stable industry segments and a substantial order book of contracted future revenue. Therefore, the SPA is on the right track to deliver sustainable growth at scale in the medium to longer-term and has the resources to withstand the existing challenges.

 

 


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