Good morning!

So far, I've noticed the following bits of news:

  • Murgitroyd (LON:MUR) - interim results
  • Begbies Traynor (LON:BEG) - small acquisition
  • Getech (LON:GTC) - trading update
  • Veltyco (LON:VLTY) - trading update
  • IQE (LON:IQE) - response to negative publication by shorter

I'll try to unpack the situation at IQE (LON:IQE) first.



IQE (LON:IQE)

  • Share price: 103p (-1%)
  • No. of shares: 789 million
  • Market cap: £813 million

Response to ShadowFall Report

This opened lower but has recovered most of the losses by mid-morning.

IQE manufactures wafers for the semiconductor industry. It's widely-followed by private investors and has been discussed here on numerous occasions before.

When I last covered it in November, I noted the material amount of short interest outstanding (6.5% was disclosed at the time) and guessed that this was due to 1) its high valuation against conventional metrics, 2) the lack of free cash flow generation, and 3) its reliance on a small number of customers. The share price at the time was 162p.

Since then, reported short interest has risen to 11.7%, although the total short positions outstanding will be higher than this.

Whenever we see so much short interest, we need to sit up and take note - it usually means that a lot of sophisticated investors have noticed something terribly wrong with the company or its valuation.

Bear attack

On Friday night, an investment fund run by respected analyst Matt Earl published a letter detailing the rationale behind its short position in IQE.

Matt did not contact IQE prior to publication of this letter. If he had, perhaps they would have provided answers to many of the questions he raised? We'll never know.

His letter does raise worthwhile questions about IQE's joint venture operations, and provides a good overview of IQE's lack of cash generation over the years.

However, it's not a "smoking gun" publication - it provides searching analysis and raises questions, without going so far as proving any wrongdoing. Matt Earl himself is quoted today in ShareProphets as follows:

We see IQE’s statement as helping to confirm our view that while…

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