The IPH Ltd (ASX: IPH) share price rose 1% to $4.58 following the release of strong annual results this morning. Here's what you need to know:
- Revenue rose 18% to $186 million
- Net profit after tax (NPAT) rose 11% to $42.9 million
- Underlying NPAT rose 9% to $51 million
- Earnings per share of 22.3 cents (26.7 cents underlying)
- Dividends of 22 cents per share
- Net cash of $24.4 million, no debt
- Outlook for higher marketing expenditure in 2018 to support Citation Eagle software
- Focus on strengthening offices in Hong Kong and China
- Potential for future acquisitions with several under consideration
So what?
It was a respectable performance from IPH, with the company maintaining its market share in patent and trademark business in Australia, as well as growing its market share in Singapore. Management noted that they are now looking outside of Singapore to higher growth regions like China and Hong Kong. China alone reported more than 1 million new patent filings, while IPH Asia in total processed just 6,394 applications, making it a huge prospective market.
So, management shrewdly continues to target expansion in the area, via the acquisition of established and promising businesses. Interestingly, the company's Citation Eagle software may also prove a surprising new growth opportunity, with 98% client retention and $0.5 million in new revenue in the year. While it is not material thus far, it may become a greater part of the business in time.
Now what?
Priced at 17x earnings, albeit with a net cash position and zero debt, IPH appears reasonably priced if it can capture a greater market share in Asia, especially as the importance of intellectual property and trademarks in those regions grows. It appears that there is both a structural change towards more companies protecting their intangible products (brands etc), as well as a large market in which IPH is a very small player. Given the risks and rewards, IPH could be a nice performer over time if it makes its acquisitions prudently. I'd consider buying shares around today's prices.
