Date of Report: 21 October 2024
Broker: Petra Capital
Overview
IPH Limited (IPH) is a professional services company specializing in intellectual property (IP) services, particularly patent filings. The company operates primarily in Australia, New Zealand, and Asia, with a strong market presence and a network of IP agents, including Spruson & Ferguson, Griffith Hack, Pizzeys, and AJ Park. IPH is listed on the Australian Securities Exchange (ASX) under the ticker IPH.
Market Position
IPH is the market leader in the Australian IP services sector, holding a 31.5% market share, making it the largest IP group in the country. The company’s share has remained steady, reflecting resilience despite external headwinds. IPH’s network consists of several rebranded and integrated former IP agent firms, bolstering its market presence.
Recent Performance
- Share Price: The report maintains a “Buy” rating with a target price of A$8.25. The share price as of the report’s date was A$5.55.
- Market Capitalization: IPH’s market capitalization stood at $1,550.1 million.
- 12-Month Low/High: The stock had a 12-month low of $5.51 and a high of $7.29.
- Key Financials:
- Sales Revenue: $490.1 million in 2023, increasing to $609.9 million in 2024, and forecasted to grow to $728.9 million in 2025.
- EBITDA: $170.0 million in 2023, $195.5 million in 2024, with a forecast of $215.2 million in 2025.
- Net Profit (NPAT): Reported NPAT of $60.8 million in 2024, with a normalized figure of $112.4 million. Forecasts indicate growth to $126.3 million in 2025.
- EPS Growth: The earnings per share (EPS) grew by 4.9% in 2024 and is forecasted to grow by 1.8% in 2025.
Patent Filing Trends
The report extensively analyzes IPH’s performance through patent filings, using data from IP Australia and WIPO:
- National Phase Entry: Reflecting weakness due to declining PCT data, with a lag of approximately 18 months. IPH’s filings declined by 6.3% year-over-year for the rolling 6-month period ending in September 2024, compared to a market decline of 2.3%.
- Direct Route Filings: Despite the decline in national phase entry, IPH observed positive growth in direct route filings, offsetting weaknesses to some extent.
- PCT Filings: IPH’s exposure to US markets means fluctuations in global trends significantly affect its filing numbers. However, the latest data indicates stabilization with a slight YoY decline of 0.3% for total PCT filings.
Strategic Insights
- Geographical Expansion: IPH has a diversified presence, not limited to Australia but also encompassing New Zealand and Asia. The report suggests that the company’s strategy involves capitalizing on regional growth and sustaining leadership through acquisitions and integration of smaller IP firms.
- Market Adaptation: IPH’s ability to adapt to shifts in the patent filing landscape has been noted. The company managed to maintain its market share, thanks in part to steady performance from its direct route filings.
Challenges and External Factors
- Impact of Weak Global Trends: Weak PCT data from 2023 continued to impact IPH’s performance into FY2025, reflecting broader global economic pressures and a stronger Australian dollar.
- Economic Environment: The report notes that economic unpredictability and rising interest rates have dampened innovation, leading to weaker patent filings. However, it emphasizes that these trends are cyclical and should not affect long-term strategic positioning.
Financial Forecasts
- Future Growth: IPH is expected to see consistent revenue growth, with forecasts projecting sales of $728.9 million in 2025 and further incremental growth in the following years.
- Dividends: The company has maintained a steady dividend payout, with a yield of 6.4% forecasted for 2025. Franking is consistent at 32%.
- Profitability Metrics: EBIT margins are projected to remain stable, and IPH’s core net debt-to-EBITDA ratio is expected to improve as cash flows strengthen.
Analyst’s Conclusion
The report reaffirms a “Buy” rating, indicating confidence in IPH’s ability to navigate external pressures while maintaining strategic growth. The analyst highlights that despite recent challenges, IPH’s leadership in the market, robust network of agents, and consistent financial performance make it a compelling investment with a favorable long-term outlook. The 12-month price target of A$8.25 suggests significant upside potential from the current levels.
Contact for Further Information:
- Analyst: Sam Haddad, CFA
- Contact Number: +61 2 9239 9633
