Small Cap Value Report (Tue 24 Dec 2019) - IQE, TND, TSLA

24th Dec '19 by Graham Neary

59 comments 8215 reads

Good morning folks,

in today's news, IQE (LON:IQE) has promised to adjust its remuneration policy next year after 42.9% of shareholders voted against it at this year's AGM. More on this to follow.

Elsewhere, there is a holdings RNS from Tandem (LON:TND) (in which I have a long position). Jupiter has been reducing its 10% stake - I wonder is this for fundamental reasons?

Due to a lack of news flow, I can cover other topics for you - any requests? A roundup of Tesla might be fun, after the stock reached the fabled $420 level yesterday.

Timings: I will wrap this up at 12.30-13.00, as the market closes. Finished at 13.00.

IQE (LON:IQE)

Share price: 45.46p (-3%)
No. of shares: 793 million
Market cap: £360 million

AGM LTIP resolution voting and proposed actions

LTIPs ("long-term incentive plans") are considered to be perfectly standard devices and respectable consultants are available to advise companies on how to structure them. But I think it's difficult to find any, in real life, which are structured well.

And since remuneration is a very boring topic, few investors give it much thought. So we miss out on an understanding of how company executives are incentivised.

Shareholder dissent

IQE has noticed that 42.9% of shareholders voted against its 2019 LTIP at the most recent AGM. This is a rare level of opposition to an LTIP.

The company says it "did not anticipate any significant dissent", i.e. that the vote came as a surprise to it.

On the other hand, it was aware that ISS (a respected advisory body used by fund managers) had recommended voting against the LTIP.

Let's scroll back for a minute. The AGM took place all the way back in June. Why has it taken so long for a response?

I note that 173 million votes went against the LTIP. This says to me that some of the funds on the shareholder register (Invesco/Oppenheimer, T Rowe Price, Schroders) must have voted against it, in line with the advice from ISS.

Only about half of the total share count voted at the meeting - this is not a surprise. Most of us (myself included) only very occasionally vote at shareholder meetings.

If you agree with what…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Docharty

24th Dec '19

Thanks Graham for another excellent and very insightful report. I'm constantly impressed by how much analysis you and Paul are able to fit into a small space of time.

Regarding Tesla, one thing that's worth bearing in mind is their relentless ambition. They set themselves high targets, which can cause huge self-imposed headaches. However in working through these problems, they learn and improve, then repeat. Just look at their Model 3 production line issue with the 'tent'. They now have huge improvements in efficiencies & margins which they've been able to roll out in their China factory & will no doubt do so in Germany. There may be questions regarding their finances, but they are constantly innovating and carving out a huge competitive advantage when it comes to software, data & battery technology. Don't underestimate them!

stegga1000000

He’s the definition of a charlatan primarily because most of what comes out of his mouth is at best inaccurate and worst a bare faced lie. The only positive I can see from Tesla is that it gave the rest of the car industry a kick into developing their own technologies. There were electric cars before Tesla and there is nothing Tesla can do that no other manufacturer can not. The difference is that the traditional manufacturers realise it is incredibly difficult to make money selling electric cars and they are not prepared to saddle their companies with unmanageable amounts of debt. Yes electric cars are the future but to say they must replace ICE transport ASAP to help save the planet is a fallacy of the highest order. There is nothing environmentally friendly about mining and extracting billions of tonnes of copper, cobalt, aluminium, rare earths, gold etc etc

jonbeck

What is surprising reading the comments here is how many "investors" consider TSLA is "just an electric car company." If you're really into the stock for the long ride then much of TSLA's valuation should be based on it's potential as an energy stock (Tesla Megapack, Solar City, battery innovation, electric car charging etc) . I wonder how many of these same investors would (back in 1998) have assumed that AMZN was just a book seller...

MichaelFBS

yes indeed and Gold membership of Cube Investments is worth every penny!

Also @Brilliantleader coverage of Rockrose Energy (LON:RRE) is always good.

mcfly46

yes nothing but positive news recently with Tesla, I wonder what it would take for some with a strong bias to change their minds or give them , even a slight bit of credit?

Cisk

Absolute nonsense. You’re not American if you buy something else? Where do you get that idea from?

Thornabian

25th Dec '19

It is a notion and one which is backed by their exponential sales.

Go to America and find someone who doesn't own an iPhone.

Go to America and ask someone what phone they will buy next. Tesla are gathering the same brand.

Ask an American what electric car they will buy. They will reply Tesla without hesitation.

But thank you for your brash ignorance.

judywil

'there is nothing Tesla can do that no other manufacturer can not' LOL! not sure this guy actually has any understanding of just how difficult engineering is. I'm a Tesla owner. It's unreal how good it is.

Matthew Mann

The “only positive” that you point out is exactly what Musk said he wanted to achieve. So you contradicted the assertion you made in your first sentence, with your second sentence.
Other motor manufacturers perhaps can’t make electric vehicles at profit but that doesn’t mean Tesla (or a start up) can’t, it more likely means that pivoting the core of your manufacturing capability is unbelievably costly and will probably kill off a few of them, but then they are struggling to make profit on their ICE cars anyway. Or they can keep making ICE’s, but for how much longer?

As to you final point, how do you think we get the materials to manufacture ICE cars, perhaps a little mining?
I wonder if your negative sentiments are genuine, there are undoubtedly faults and concerns to raise with Tesla but you haven’t touched on any of them, instead its a repetition of disproven fallacies.

bryans1311

I’m generally quite agnostic when it comes to Tesla. It’s just too difficult to put into a buy/sell category. I wonder if the cult-like defensive attitude of some of its fanboys and girls- even here- is a sign?

Well, my ‘brash ignorance’ comes from living in America, in a city that is their biggest market, where there are Teslas on pretty much every corner nearby where I live.

So I don’t need to go there and ask them anything, I’m already living there.

I would be very careful in applying sweeping generalizations to support a wobbly investment thesis.

History has repeatedly shown that the first to market rarely end up being the market leader in the long term. Tesla may have been the pioneers in the field, but the others are catching up, and have already nailed the areas where Tesla trails, for example: quality, reliability and customer service.

john2

26th Dec '19

There are a number of problems with battery-powered cars which are unlikely to be resolved in the near future. The batteries are heavy, have limited range and take a long time to recharge. The best model 3 Teslas have a quoted range of between 250 and 322 miles, wich is OK for day to day driving but not so good for a long journey when it takes 40 minutes to recharge to 80% capacity (assuming you can find a free Tesla supercharger). Several times a year I do a journey which is around 1000 miles door to door - waiting for recharges would add substantially to the journey time.

Then there is the problem that if everyone drove a battery-powered car the nation's electrical infrastructure would be unable to cope.

Finally, there is purchase cost - even a low-end petrol car is a very expensive purchase for the majority of people, and most people will always go for the cheapest transport option.

A number of major car manufacturers are beginning to acknowledge that electric cars are unlikely to be the future of motoring in the medium term, and both Toyota and Audi are currently developing cars powered by hydrogen fuel cells.

Yes my family are American and live near DC, have a Tesla and only buy iPhones, my comment was one of fact about branding and has nothing to do with your own personal taste or where you live.

You may not agree on the power of their brand but even as Warren Buffet would say "they have a piece of consumers minds".

I don't think there are many people who drive more than 300 miles in one day and if they do I'm sure they wouldn't mind stopping for 45 minutes.

With that said, there are now Tesla fast chargers which charge 80% in 10 minutes, they will be rolling out in the next couple of years.

This is where Tesla is way ahead of other car makers.

I wanted to purely talk about branding but I will make some further points after being attacked for my comment.
I was long Tesla at 190 because it was quite clear from their balance sheet that they would not run out of liquidity. Contrary to what several hedge funds were saying, something which Elon himself made fun of post Q3.

With his new factory in Germany, he has access to some of the best talent in car production and with Chinese incentives to go with his gigafactory 3 in Shanghai, Tesla will start to really compete on the big stage and they move at a much faster pace than the likes of BMW. BMW are so far behind that they dont even have an electric range announced. Only VW of the large car manufacturers do and it is underwhelming and more expensive than the Tesla Model 3.

Tesla chargers and their other units (home) are where they can really add value because they plan to integrate charging cars and homes all together and they have market leading home batteries and charging stations. Power wall 2 is by far the best and cheapest battery storage per kw for homes, with powerwall 3 likely to be released in 2020.

As I said before, 430 is a high price now so I wouldn't be long now but I dont see any reason to short Tesla with all of the points mentioned above and the current reasonable cashflow and working capital ratios. Not to mention the ease of raising funds, if they need to, but they won't again.

I would be more concerned that they weren't leading the market and were no longer innovating or their brand became tarnished - which was my original short version of my overall point.

27th Dec '19

It seems I angered the fan boys (&girls)

jwebster

30th Dec '19

£TSLA

If you are a trader I can imagine TLSA is a fun stock to trade long and short in swings

If you are an investor, watch what the slower but large majors are doing. Toyota is huge and they say:

"we will be launching more than 10 battery electric vehicle models by the early 2020s. Our first target market will be China, after which we expect to roll them out to customers in Japan, India, the United States and Europe"

https://www.toyota-europe.com/world-of-toyota/feel/environment/better-air/electric-vehicle

Play the ball not the man

MiserableJacktPotato

1st Jan '20

“BMW are so far behind that they dont even have an electric range announced”

Oh dear. They’ve been making the i3 for years. And just about every model has a PHEV version. They just need to get their fleet co2 below the level that gets them fined by the EU and they have a strategy for that.

“Only VW of the large car manufacturers do and it is underwhelming and more expensive than the Tesla Model 3”

Someone better let Renault/Nissan, Jaguar, Mercedes, and Ford know they haven’t got electric ranges planned. 3 of those are already producing electric cars, and Ford release the Mach-E next autumn.

Personally I’m about to put a pre order in for a Mach-E looks much better engineered and classier than the Model 3.

They’re easily triggered.

Small Cap Value Report (Tue 24 Dec 2019) - IQE, TND, TSLA

IQE (LON:IQE)

Unlock the rest of this article with a 14 day trial

About the Author

Graham Neary

59 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...