Analysts at Canaccord Genuity downgraded semiconductor IQE from ‘speculative buy’ to ‘hold’ on Wednesday, stating the firm was stuck between “a wafer and a chip place”.
Canaccord Genuity stated that given IQE’s “uninspiring growth and profitability outlook”, it was now opting to move to the sidelines on the stock, as although the shares’ 2x enterprise value/sales ratio was “undemanding” and sitting towards the lower end of the historic range, with UK investors being “spoiled for choice” in better relative value in more “predictable and profitable” software and tech-enabled services names, it chose to downgrade the stock and lower its target price from 55.0p to 43.0p.
The Canadian bank said in a strong semiconductor demand and 5G growth environment, IQE’s soft revenue performance remained “somewhat puzzling” to its analysis, suggesting “meaningful value share loss” to Asian compound wafer competitors over the last 12+ months.
“Reversing this will not be an easy task for the new CEO whose strategic options (M&A, additional growth investments) are somewhat constrained by a tight balance sheet with £12-15m of net debt and negative free cash flow expected this and next year,” said Canaccord.
Analysts at RBC Capital Markets lowered their target price on miner Antofagasta from 1,450.0p to 1,350.0p on Wednesday as it cut its rating on the stock from ‘sector perform’ to ‘under perform’, stating the risk/reward scenario was now “stretched”.
RBC Capital said it had updated its estimates on the stock for cost inflation – moving ahead of guidance based on rising Chilean CPI, now at roughly 8% and set to further into higher energy and food costs, and higher oil price forecasts.
The Canadian bank stated copper-to-oil ratio, which saw a better margin environment for the miners in 2020 and 2021, has now unwound to long-run averages despite copper being near record levels.
“The accordion effect of the higher cost base from 2023 (assuming a c. ~5% inflation yoy then flattish) reduces our NAV estimates substantially (c. 35% and places our forecasts c. 16% behind consensus 2022 EBITDA). We continue to see potential that supply growth (and increasingly potential for weaker demand) could drive copper prices lower in the near-term. Our base case forecasts remain $4.25/lb for the balance of 2022 and $3.75/lb for 2023,” said the analysts.
With inflation pushing margins down, RBC said Antofagasta looked set to flip back to cash flow negative in 2024 but added it still believes it to be “a well-run company”.
Citi downgraded its stance on Experian on Wednesday to ‘neutral’ from ‘buy’, arguing that cyclical headwinds are likely to make it difficult for the North American data business to deliver consensus FY23E organic growth of 8.2%.
“In an environment in which US housing transactions reduce year-over-year, we think 4% is more reasonable,” it said.
“With our group adjusted profit before tax of $1.70bn circa 2% below Visible Alpha consensus at $1.74bn, we do not believe that consensus earnings estimates can continue to rise, driving the downgrade.”
Citi said it continues to view the credit-checking company’s cash-generative nature and strong track record of organic growth as attractive, and see upside to FY23E consensus in the Latin American business.
