IQE PLC (AIM:IQE) raising money from its largest shareholder de-risks the balance sheet ahead of a planned spin-off of its Taiwanese subsidiary via an IPO in the country, and is a canny move, according to analysts.
Broker Peel Hunt said the offer of short-term fundraising via convertible by a shareholder with a board seat "gives credence to the value to be unlocked".
Lombard Odier has offered to provide funding of £15 million with a 15p conversion price above the last close.
Analysts at Panmure Liberum also noted that the market's focus since the interim results has been the balance sheet.
As well as the funding from Lombard, the analysts said there are also "some reports" in the US of progress on CHIPS Act funding, and that they hear that HSBC, the lead bank on a $35 million revolving credit facility, has been very supportive.
"The proceeds of the sale of the Pennsylvania site (listed at $5 million) are expected in December," they noted.
Alongside the funding announcement, IQE also warned that revenue and profits would be lower than expected, reflecting industry-wide softness that the analysts agreed was not confined to IQE.
Furthermore, the board will be conducting a comprehensive strategic review of its asset base to ensure a strong capital position to further invest in its core operations, with analysts noting that gross non-current assets were worth £205 million at the end of June.
As part of the review, IQE will broaden its options in relation to the proposed IPO of its Taiwan operations to potentially include a full sale of the entire PLC.
Peel Hunt said it was cutting its full-year 2024 and 2025 revenue forecasts by 12% and 26%, which reduces EBITDA by 60% and 55%.
The Taiwan business is a "circa £40 million business at this cyclical low", the broker added, which if using a 20% discount to Taiwanese peers VPEC and LandMark would imply a £192 million enterprise value for IQE Taiwan.
"Over the last decade and more, those peers have also delivered c.20% FCF/revenue. If we assume a trough underlying FCF yield of 5%, this implies a £160m EV for Taiwan."
The offer of a convertible by a shareholder with a board seat gives credence to the value to be unlocked. We believe this lowers risks, particularly in the short term.