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There are poppies, poppy growers and poppy snippers who cut the tallest and most aetiolated blooms down to size even in the corporate world.

Cardiff-based IQE, maker of compound semiconductor chips used in 3D sensing, is a poppy that has grown tall on promises of speedy rises in sales and profits. And there is a band of enthusiastic growers, led by IQE founder Drew Nelson, who are keen to nurture the blooms and defend IQE from the poppy topplers.

That has not been easy. IQE has a record of patchy earnings and multiple cash calls. It is too often guilty of raising hopes and dashing them, whether because hoped-for sales to Apple suppliers have stalled or geopolitical tussles have upset order flows. Expectations for 5G, self-driving cars and the internet of things have been overblown, giving short-sellers plenty of ammunition to lob at IQE. The shares, which were well over 600p in 2000 when poppy growers were at their most hopeful and 180p even two years ago, are now 63p. Even then, they are on a hefty rating of 30 times earnings forecasts for 2021.

It may be, though, the group is turning a corner.

The management team, still led by the 60-something year old Mr Nelson but buttressed by a newish chairman and a former ARM executive as finance director, has been more reserved. They’ve brought the cost base down and expanded the product mix. The spending to build what Mr Nelson reckons is the biggest epi-wafer foundry in the world is largely complete.

IQE said on Tuesday that its revenues in the year to December would be nearer £170m, up about £5m on previous guidance. Last year’s operating losses will turn into a profit, albeit adjusted, in the mid-single digits. Net debt, which reached £17m in 2019, will also be down to nearer £5m.

We’ve been here before. Analysts had forecast £170m in sales in 2019 only for IQE to warn they’d be nearer £140m.

But this time it might be different. Facial recognition is an iPhone reality. Smartphones are 5G ready. Machines are learning.

In addition, Mr Nelson — who oversaw the group’s flotation as a supplier of fibre optic parts to the likes of BT in 1999 — plans to step back as chief executive and become a non-executive director. He will have a more “ambassadorial” title of president, which may stop short-sellers wielding their secateurs.

That said, Lombard is keenly aware that poppies don’t uproot easily — particularly those of the presidential variety.

Greencore takes the biscuit

Sandwich maker Greencore is a specialist in last minute grab-and-go catering. That might help explain why it waited until the deadline to grab Covid survival funds.

Full-year results from the company came with a £90m share sale that will dilute all holders by a fifth. It chose to raise the maximum permitted by industry watchdog the Pre-Emption Group, which had complained just last week that companies had already been given eight months to get their house in order. Next month, its limits on emergency cash calls will reset to a maximum of 10 per cent of share capital.

The PEG loosened its rules in April to give stricken companies a quickly accessible lifeline, but well-funded companies such as Asos and Boohoo chose to exploit the extra flexibility for fighting funds in anticipation of their weaker rivals struggling. 

Greencore is in the same category. Its net debt looks uncomfortable at nearly 5 times Covid-reduced ebitda but liquidity has never hit danger levels. Survival was never in question. The new funds guarantee only that, even if things turn nasty again, investment in a post-pandemic vision of sandwich-making robots and suburban salad bars won’t suffer.

Patrick Coveney, Greencore's chief executive, says the company overreacted heading into the first lockdown by pulling its food-to-go ranges from supermarket shelves. Britons demand sandwiches, yet seem oddly reluctant to make them. About 60 per cent of home-made lunches involve a sandwich and more than a third of home workers are still buying their lunches prefabricated, Greencore's market research suggests. Mr Coveney says that about half of the company’s food-to-go products are now being eaten at home. 

Greencore’s bet therefore is on an industry recovery led not by urban cafés but by supermarkets and chain retailers such as Boots. It predicts a permanent lunchtime migration to suburbia, where the local grocer has better survival prospects than the independent coffee shop. That gives Greencore a chance to take market share, which has already strengthened through the crisis by the failure in June of smaller rival Adelie Foods.

That Mr Coveney put nearly £400,000 of his own money into the equity placing speaks of confidence in the long term plan. Investors appear to share his confidence, bidding the stock 3 per cent higher and giving him an instant 10 per cent paper profit on the discounted placing price, though they can feel short-changed at not having the opportunity to share his vision on the same terms.

IQE: Kate.burgess@ft.com
Greencore: Bryce.elder@ft.com

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