LON:IQE | IQE

8th Feb '18 by Taff6

16 comments 6554 reads

Hi all

I have no position in IQE, however it is evident that it is very well followed by stocko subscribers. I have CC this piece from share profits apologies if already common knowledge. I also have the full report if anyone wants a copy message me your email address. (Don't think i can attach to post?)

FYI

Legendary US bear raiding outfit Muddy Waters has announced that it is short of IQE (IQE). It dismisses Matt Earl's Shadowfall dossier of last week as only partially getting there and has published its own devastating report slating IQE as an "egregious accounting manipulator". Don't mess with Muddy Waters, anyone out there still owning this stock should sell NOW!. Muddy notes:

Muddy Waters Capital LLC (“Muddy Waters”) is an investment advisor to private funds. Muddy Waters has analyzed the U.K.-listed company IQE plc (“IQE”) and is hereby publishing the outcome and the conclusions of our analysis, which is based on publicly available information. Funds Muddy Waters manages are short shares of IQE and for this reason there might be a conflict of interest.

Muddy Waters is Short IQE plc (AIM: IQE LN)

Muddy Waters Capital LLC is short IQE. IQE is, in our opinion, an egregious accounting manipulator. We adjust downward the company’s reported net income for 2015 and 2016, respectively, by 58.5% and 25.4%. We believe it is reasonable to adjust 1H 2017 net income down by approximately £5 million or 69% to account for likely aggressive capitalization of expenses.

The 2015 and 2016 adjustments reflect our belief that IQE’s transactions with CSC are not substantive, and the accounting is possibly designed to deceive investors. We estimate that when IQE booked gains on transferring PP&E to CSC, it transferred the PP&E at a valuation 4.6x carrying value. This markup strains credulity. We call upon IQE to release the purportedly independent valuation report in full, and we will publicly opine on it (even if it convincingly supports the valuation). IQE was CSC’s only customer through 2016, and CSC generated an abysmal negative -105.9% gross margin! (It is almost amazing anyone would claim that it “holds itself to the highest standards of corporate governance, transparency, and integrity” with a straight face under these circumstances.)

We identify five previously unknown issues with the accounting for transactions between…

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Taff6

9th Feb '18

Hi All

It’s been a turbulent week for £IQU. I was wondering how investors were responding to the news flow as the share price stabilised today. I carried out a quick search via Hargreaves Lansdown into the share trades and volume as it can be a good time to buy if a share isn’t responding poorly to bad news.

This is the result

Buys

Sells

and N/A

So, £12,159,683.48 Sells and £8,491,470.96 buys with £987,880.84 unaccounted for N/A
That equates to £3,668,212.52 net sellers. However you would have expected some follow through from the sellers today with it being the week end. However if we look at today’s volume things are presented slightly differently. Today’s volume data is highlighted as follows, green buy, orange sell and blue N/A. Let’s take a closer look

With 69,090.00 N/A
That works out at a buy/sell ratio of 1.54917788 on what potentially should have been a bad day!
Will be worth viewing closely in the coming days to see if share price starts rising and potentially start forcing a short squeeze.
IQE is reasonably well supported with institutional ownership and it will be interesting to see what their response is Buy, Sell or hold. Keep an eye on what Hargreave Hale do as Giles Hargreave is one of the most astute small cap fund managers around. (Institutional ownership source of information Investors Chronicle)

5a7ddb0e6f638IQE_Institutional_ownership

All the best J

16th Sep '18

https://www.stockopedia.com/content/iqe-doing-what-minervini-predicts-195215/?comment=437#437

JohnWigg

17th Sep '18

I know nothing at all about IQE, but must warn you that categorising trades as 'buys' and 'sells' is a pointless exercise. In fact, IQE trades under SETS on the LSE so every trade marked 'AT' is both a buy and a sell, whilst a trade marked 'UT' is the result of an auction between buyers and sellers.

Remember that the LSE doesn't reveal whether trades marked 'O' are buys or sells from/to market makers. Your lists are the result of your broker's guesses and can't be relied on.

mmarkkj777

Perhaps I am be over simplistic, but surely, in the greater scheme of things, there has to be an equal number of buyers and sellers? Every sale has to have a buyer and every purchase has to have a seller?

If there is more demand than supply, the price rises until a seller sells (fulfilling the sell side of the bargain) and vice versa.

I guess the HL numbers are their views of the ratio of sells or buys initiated through their customers. It can be determined if it is a buy or a sell by comparing the price paid (across the spread).

Rusty2

A lot of the buys and sells are incorrect. But the balance they not sold or bought at the auction after the market closes? Some large deals are announced later, try working out if it's a buy or sale if it's a day or so later.

matylda

https://www.youtube.com/watch?v=72Pq5zKEi_g&t=1436s - You can watch from 11 minutes in - For info only, no view either way on £IQE

GrahamF

Taff

That report that you mention in the article is pretty much ancient history. Muddy Waters and Shadow Fall released their 'analysis' to support their short positions. It was rebutted at the time. The company has since brought in new auditors who found nothing untoward. The annual report has been published with full accounts and, surprise surprise, MW and SF are long gone. There are a lot of other shorters for this stock as you point out but equally T Rowe Price keep on lending stock out and bit by bit increase their position. So, who is right TRP, who have been a long term supporter of IQE and know them inside out or the shorters?

So much for ancient history. If you want some actual up-to-date news, try this.

Apple have just announced that all three new iPhones will have face id. So, that's three models as compared to one now. The VCSEL components that these items use come from OEMs who almost certainly get them from IQE as there is no other realistic supplier who can manage this yet at scale yet. Backing this up is that the company has confirmed that the Android market are now starting to come on board. So, even in mobile phones this is not just an Apple story. (And by the way, although Apple have committed to taking some supply from Finisar so they can dual source, Finisar are still some way from being up and running - it is a complicated process.
So, of course there will be competitors catching up in due course but it is not a simple thing to copy).

So much for VCSELs for mobile phones.

To get a fuller picture you need to add in VCSELs for automotive LiDAR (driver assistance systems and autonomous vehicles), 5G comms, photonics for high speed internet infrastructure, HAMR drives, and a number of other initiatives.

How low can this go? A long way. (Deep respect to Peter Lynch)
How high can this go? A long way. (Deep respect to James Anderson manager of Scottish Mortgage - quote below)

"All too often excessive fear of events and headlines and a misguided desire to lock in past profits lead investors to chop down trees when they are but saplings. All great companies endure through periods of struggle. All great shares endure periods of dramatic under performance. It is only in retrospect that success appears smooth and inevitable."

I hold in the belief that, while IQE have struggled for a significant time to make significant headway, they are very well positioned to take advantage of high growth tech markets where they also have strong IP protection.

I really like this company (have held last year and got burnt).

The problem is its still heavily shorted. Apparently 11% of shares in issue on loan to shorters; around 9 funds (Coltraine Asset Mngt. being the largest shorter, but even JP Morgan are short of them). Its the 3rd most heavily shorted UK stock.

Whether the evidence was correct or not, it still had the same effect. Sad but true.

I'd like to buy back in, but I don't want to risk my hard earned gains as fodder for the shorters, dubious or otherwise.

I'd like to see sustained gains and the shorters closing positions before going back in.

Hi All

Graham yes thanks, This is an old post, originally dated 08 Feb.Think this may have been the day or the day after the report, and it wasn't my view or a view I shared, but the point I was actually trying to make was that if there was any substance to the report, I would have expected the share price of IQE (LON:IQE) to get hammered. (the opposite actually happened the first AB =CD pattern had just completed and price reversed sharply supporting your view of £IQE). You seem to have a good knowledge of the company and you updates are excellent.

John Wigg, herbie & mmark
Thanks for your replies, I've asked the question in respect of Buys/Sells to a number of people (customer services) and have yet to receive a consistent answer, but everything posted by u guys makes sense.

matylda
Thanks for link, I haven't watched yet but will do now, I'm with you I don't have a strong view either way, however believe we are now close to or at an inflection point and will find out soon. would have preferred the .618 to have been tested to see what the reaction was. Keep up the good work enjoy your updates!

Not sure why people have picked up this thread as I had switched my post to Nickwild's post?

https://www.stockopedia.com/co...

as there is some excellent commentary there.

Institutions appear to be staying long with shorts also holding firm, with the exception of Goldman Sachs who appear to be closing longs if TR'1 are to be believed!

https://www.investegate.co.uk/...

stepone

The problem isn't that they are heavily shorted - it's that they were over-valued.

I don't agree.

Lots of companies are overvalued (in the statistical sense) including several that I hold. Apple, Amazon, Fevertree, etc. But in this case the shorters published negative info. which, whilst the ethics of this can be debated, and I can see both sides, it certainly had an impact on the share price.

Shorters often do sterling work to weed out bad practice, bad communication and sometimes fraud. However, sometimes it is just to enhance their short position (without real substance). The smoke they generate is enough to spook the market and it often has the desired effect (regardless of whether there is fire behind the smoke).

I hear what you say about shorters but I think there is more to it than that. I used to hold until Nov 2017, this year the EPS forecasts have fallen steadily, for such a high value where is the growth? You quote Fevertree Drinks (LON:FEVR) but that has strong growth still, last results it was +36% and all this year EPS forecasts are going up, they always seem to beat the forecasts, IQE (LON:IQE) seem to disappoint, I can see why the share prices are going in different directions.

Maddox

18th Sep '18

Shorters are not moral actors looking to correct market imperfections they are like wolves that organise themselves into packs and then look for the weak reindeer in the herd. They are only interested in making a profit and don't always get it right (GVC is a recent case in point).

Normal market activity will not be able to absorb concerted selling - that together with a 'report' to sow doubts in the mind of potential buyers and the effect on the share price is inevitable.

The Shorters play-book reveals itself in the following characteristics:

aa) A plausible research report - of uncertain authorship;
bb) Report published on a widely accessible website that doesn't authenticate publications;
cc) Up-scale in shorting/stock borrowing - prior to publication;
dd) Firms with short positions are unfamiliar named LLP's with similar descriptions - 'multi-strategy', 'absolute returns', 'hedge strategies' etc;
ee) Share bulletin boards see newly registered frequent provocative posters promulgating FUD (fear, uncertainty and doubt) to distract potential investors; and of course the intended,
dd) Rapid decline in share price, triggering stop-losses, and providing 'apparent' substantiation to the report.

The Contrarian play-book is therefore:

1) Decide whether there is any substance to the analysis;

2) Be patient until the shares have bottomed and the Shorters look to close their positions; and

3) Remember Shorters are ultimately forced buyers with open positions that are costly to fund.

IQE might be a the forefront of a technology shift with very few competitors - if you think this is correct the Shorters are giving you a great opportunity.

You might like to see a case study https://www.stockopedia.com/content/paysafe-time-to-back-the-truck-up-again-162235/

Regards Maddox

@ Maddox - that's pretty comprehensive, but I think you've missed 'stage 1' which involves research of the 'scuttlebutt' kind which the contrarian investor will have neither time nor means to replicate.

For example, the Greek telecoms company, Globo. The lead shorter actually tried to contact its so-called customers and suppliers (a few weeks in Greece) and found them to be no more than Potemkin companies.
Then there's Prothena, the Woodford superstock. The lead shorter interviewed several experts in its field, who were generally sceptical.
Purplebricks - I believe Jefferies (which published the bearish note recently) actually sampled some of the properties and decided the company's claims were inconsistent with their findings.
Quindell was a classic case where the vindication of the short position (by Gotham City) was a matter of (not-so-simple) forensic accounting. It's surprising how many City firms supported Quindell to the end despite the evidence. And Slater & Gordon were sufficiently taken in to buy the company!

All this is far off topic for IQE, but it does show that the contrarian case is hard to construct. In view of the risks shorters take, they probably go through dozens of candidates before finding the one worth the risk.

A great debate and not too far off topic, because as far as I can tell, IQE are still the third most shorted stock in the UK. Even JP Morgan Investments UK are short of them.

Its the single thing that prevents me buying. Perhaps there will be a rebound triggering a short squeeze reaction. However, having been burnt once on this stock, I would like to see some real concerted momentum first.

13th Nov '18

During my last post here I stated “however believe we are now close to or at an inflection point and will find out soon”. So it looks like we have found out somewhat comprehensively and it would appear that bears are in total control as bulls failed to take price above 100 to the upside out of the last inflexion point and also failed to take price back to 77 after the initial wave of selling. Bears will now be targeting 51 followed by 35, can’t see bulls having much appetite before 42. So it looks like one to stay clear of for now, however as always as we found with IQE (LON:IQE) things can change in the blink of an eye.

keep an eye on short positions (currently @10.67%)

IQE

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Taff6

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