Another bad day for IQE and another former AIM star stock

Both have been profitable investments for investors, but times are tough. Here’s what’s currently driving share price direction.

Investors will be hoping vehicle test track firm AB Dynamics (LSE:ABDP) and semiconductor wafers business IQE (LSE:IQE) can soon turn the corner after a challenging 2021 for their share prices.

The pair hit the peak of their AIM popularity in 2019 and 2017 respectively, but shares in AB Dynamics have fallen 44% since then and Cardiff-based IQE is off 77% at 38p.

Supply chain disruption and currency headwinds have dented sentiment towards both stocks in recent months, with IQE impacted by shortages in the broader semiconductor industry.

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IQE lost a quarter of its value today after forecasting an 8% fall in revenues this year due to softness in smartphone-related demand and weakness in the roll-out of 5G infrastructure.

Interim executive chairman Phil Smith said: “Broader semiconductor market shortages have softened demand in some supply chains but we believe these effects to be temporary and remain excited by the opportunities ahead.”

He added that significant strategic and operational progress has been made to position IQE for an upturn in trends, aided by this week's appointment of incoming boss Americo Lemos.

Lemos, who joins in January after previously serving on the executive team of New York-based GlobalFoundries, takes on the role held by IQE’s founder Dr Drew Nelson.

House broker Peel Hunt cut its target price from 121p to 103p today but noted the disappointing performance was due to end-market malaise rather than loss of market share.

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The City firm believes that better market-oriented thinking and deeper and more proactive engagement could mitigate some of the volatility in the future.

“This is exactly why we are excited by the new CEO, who we expect to drive front-end changes required to enhance earnings quality,” the broker added.

AB Dynamics continues to expect some supply chain disruption in 2022, having experienced the impact of Covid-19 on some customer testing activity earlier in 2021.

However, these factors have been set against a backdrop of record levels of order intake, revenue and cash generation.

An improved second half meant revenues rose 6% in the year to 31 August, although adjusted earnings per share was 6% lower at 37.4p. It is paying a final dividend of 3.2p a share on 28 January, with the 10% growth in total dividend highlighting confidence in prospects.

Shares fell 15p to 1,515p, having fallen 21% since the company's last update in late September.

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Liberum believes shares are worth 2,700p and says the recent weakness is surprising given the momentum in the business.

The broker said: “This is a high margin, cash-generative business that has invested in its global infrastructure and will leverage that as markets return to growth.”

Tony Best founded AB Dynamics in 1982 as an engineering consultancy. It supplies driving robots and simulators, including those used by the Alfa Romeo Formula 1 team, and is also leveraging its capabilities and technology into military vehicles, mining and agriculture.

When it floated in May 2013 at a placing price of 86p it was valued at £14 million, compared with last night's £360 million.

Peel Hunt, which has a target price of 2,800p, said the group looked to be in good shape heading into 2022, with a strong order book and £22 million of cash on the balance sheet. It added that the March acquisition of testing services firm VadoTech had bedded in well, helping the proportion of recurring revenues in the group to improve to 35%.