Diary: PIC, CPP, IQE

Changing your mind

An author over at Seeking Alpha writes:

one thing I learned from Buffett was that the best companies to invest in are usually those you dismiss the first time you hear about them. It isn't until you move in for a closer look that you discover the true value of the company, and by then you have an edge over the market because most people do not bother to move in for a closer look.

PIC - Pace - Tech hardware and equip - 64.6p/£197.1m

The company's share price continues to fall, but Slashdot  reports that Logitech is stopping production on STBs (set-top boxes) for Google TV, calling it a "big mistake". Logitech Chief Executive predicted:

the "grandchild of Google TV" might succeed but not the current product. For now, that leaves Sony televisions with the Google software for people looking for the Google TV experience.

According to my calculations (DB02/21), it has a ROC of 96.6%, and UEY of 18.8%, putting it high on a list of magic formula companies.

CPP - CPP Group - Support Services - 145.6p/£249.6m

Some points from CPP's IMS on 25-Oct-2011:

• revenue grew by 6%
• costs and lost revenues associated with the ongoing FSA investigation have had a negative impact on margins. Discussions are ongoing.
• revenue growth in UK has been achieved despite the ongoing suspension of new sales of Identity Protection
• India and China drive revenue growth, and the directors see a lot of potetnial in those markets
• company has net cash at of £9.9m at 30-Sep-2011, compared with net debt at 30-Jun-2011
• anticipates continued revenue growth

For the 6 m/e 30-Jun-2011, revenues in UK amounted to £116.9m (68%) of the total revenues of £172.1m over all geographical regions.

On 09-Nov-2011, I estimated (DB02/20) that CPP had an EBIT of £49.1m, TEV of £17.2m, EV of £270.3m, implying a ROC of 285%, and UEY of 18.2%, based on a share price of 150p. It has since declined to 145.6p. Unsurprisingly, this company is ranking very highly as a magic formula company.

IQE notes

Here is a summary of some of the points made by Jessica Furseth in an article on IQE on 31-Oct-2011.

While other areas are becoming significant, IQE's success so far comes downs to the booming wireless tech industry.. "The smartphome cycle ... is still just beginning so we still see very exciting growth in this sector".

In 6 months to June, revenues increased 16%, pre-tax profits rose 28%, and it went from having £7m debt to £1m cash.

Only 28% of the world's mobile phones are smartphones, and this segment continues to grow rapidly. This increases the need for chips. Silicon is hitting its physical limits, so compound semiconductors, such as those from IQE, are more attractive. The economics of crystal chips are changing. IQE has 30% of global share. Dr nelson, co-founder of IQE in 1988, says that Intel believes these new integrated circuits may well become the future of chips, with the first products incorporating the new tech set to see the light of day by 2015.

Compound semiconductors use less power, and can store more data.

Intel's Light Peak cables, developed in partnership with IQE, will be launched in six to nine months.They are expected to replace USB-2 cables. Cost reductions are making this more economically viable.


The following information appeared in an article in Compound Semiconductor.

6" GaAs [Gallium Arsenide] epitaxial substrates will be the most prevalent, accounting for slightly more than 80% of total device demand over the 2010 to 2015 period. The demand in 2010 was for about 29,600 ksi (kilo square inches), and estimated to be 40,200 ksi in 2015.

Valuation Metrics

IQE has a share price of 20p, giving it a market cap of £105m. PER is 13.7, and it has net cash of £1m. PBV is 1.58, gearing -1.5%, and z-score is 3.21.