Present value of IQE contract

Ok I was a little pessimistic over on the other thread so I thought I better run some more reasonable numbers. Further, my worst case scenario was in stark contrast to the excitement being shown by IQE about cREO of late and I note that their business has grown at a consistent rate over the last 5 years - so they do know what they are talking about.

The scenario I came up with was...

15 years of cREO production and sales.

Starting at 1.5 million wafers sold in FY2017, rising to 7,000,000 by 2021 and remaining here until 2026 before winding down.

At a constant wafer price of $150 (prices should not rise with inflation and a fall is likely to be accompanied by higher volumes - so I was happy with a constant price).

I applied an average royalty rate of 4.5% [simple (3+6)/2]

And I applied a discount rate of 8% (seems reasonable for our current low interest rate environment).

I came up with a present value for a $475,000,000 15 year income stream of $268,000,000!!

With 170,000,000 SLX shares in the market - this equates to $1.57 per share - add cash at bank at $0.33 per share and we should be looking at $1.90.

The fact that Silex Laser is being value at $Nil is laughable!!

What this doesn't take into account either is the IQE share holdings - dividends will be payable to us based on the profits which IQE are making - which will come in very handy - say an extra couple of million a year in 5 years time.

Nobody kid themselves please - what I have posted here is crude and ugly - but it is possible and it is far from a best case scenario too. If cREO is as good as what IQE says and there is a major demand for these wafers in electric vehicles and for power switching technologies - 7,000,000 wafers per year might be the units sold to just one or two customers.

Exciting times ahead - and we are here at the bottom.

SirKnight.