Interactive Investor

Insider: look who’s buying at IQE and Future

7th February 2022 10:48

Graeme Evans from interactive investor

These two popular companies have had their problems, but the people who run them think the market has got it wrong and that the shares are undervalued.

A director at semiconductor wafers firm IQE (LSE:IQE) has spent £75,000 backing the smartphone supplier for an upturn in fortunes under new chief executive Americo Lemos.

Victoria Hull, whose tech sector experience includes directorships at Alphawave IP, Network International and Ultra Electronics, bought the shares on Thursday at a price of 32.4p.

They had been trading at 75p just over a year ago, but fell by a quarter in November after a profits warning triggered by supply chain issues across the smartphone industry.

Volatile market conditions haven't helped the recovery since then, offsetting a resilient update from Lemos at the end of January, and confidence in the City that IQE hasn't lost market share.

The AIM-listed stock closed last week at 32.95p, but analysts at house broker Peel Hunt recently reiterated their price target of 103p and said the ingredients are in place for the IQE story to move forward in earnest this year.

The broker believes the tailwinds of 5G infrastructure are still to come and that there is pent-up demand for mobile volumes after the supply chain issues facing clients including Apple.

Peel Hunt said: “We are clear on both the strategic positioning of IQE, and the medium-to long-term health of its end markets. These are strong pillars on which to build IQE’s ability to deliver sustainable growth.”

The recruitment of Lemos from the executive team at New York-based GlobalFoundries adds to interest around the stock, given that he has also worked in senior roles at Qualcomm and Intel.

Analysts at Edison wrote a fortnight ago that they hoped his relationships with global semiconductor manufacturers can produce some long-term strategic collaborations, with the potential to support stronger-than-market growth in the medium term.

However, Edison believes any share price recovery will first require greater visibility on the smartphone market and on the timing of the 5G infrastructure roll-out.

IQE has supplied epiwafers and substrates to successive generations of the consumer mobile market since the early 1990s. It has also enabled wireless and optical communications across the various generations of telecoms network infrastructure.

It now has 650 staff across nine manufacturing locations, including in Newport and Milton Keynes and sites in the US and Asia.

Drew Nelson co-founded the original business in Cardiff in 1988 and oversaw IQE's listing on the stock market at the height of the dotcom boom in 1999.

Shares sank between 2000 and 2002 but retained a strong following among retail investors, with the company's exposure to the iPhone boom helping shares recover to 171.5p by 2017.

Nelson stepped down last year but remains on the board and is a major shareholder with a 4.5% stake. Fellow non-executive director Hull was appointed in August, bringing legal, commercial and governance experience from her role at Invensys, now Schneider Electric.

Thursday's purchase was her first since joining the IQE board. Chairman Phil White and director Carol Chesney also spent £15,375 and £7,615 respectively when shares were trading at around 38p shortly after the November profit warning.

Publisher chief spots a bargain

Future (LSE:FUTR) boss Zillah Byng-Thorne bought shares worth £233,393 on the day shareholders staged a big protest vote over a controversial bonus scheme that could net her £40 million.

The purchase of 7,427 shares was made at a price of 3,142p, representing an 18% discount on the start of the year as the Country Life and Classic Rock publisher has found itself caught in the wider volatility affecting tech and growth stocks.

It closed the week at 2,890p, the first time it has been below 3,000p since June. This compares with Peel Hunt's recent price target of 4,500p and comes despite Byng-Thorne revealing on Thursday that trading has been in line with recently upgraded expectations.

The sell-off continued after Future said 55% of votes went against its remuneration report.

Future believes the failure of the advisory vote was related to discontent over a new employee bonus scheme, which has the potential to award about £40 million to Byng-Thorne in three stages based on the performance of the business.

The scheme was agreed at the 2021 AGM, but 36% of votes were against amid concerns over the potential for extremely large pay-outs based solely on shareholder value creation.

Future said the plan is directly aligned to shareholder interests and will only vest if the company delivers exceptional performance. However, it has promised to initiate a new consultation process following last week's vote.

Byng-Thorne's pay for 2020-21 came to £8.8 million after her salary of £575,000 was bolstered by £7 million from a 2018 long-term incentive scheme tied to earnings and share price targets.

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