IPH Limited (IPH) is the holding company for Spruson & Ferguson which was established back in 1887. IPH listed on the Australian Stock Exchange at $2.10 in November 2014.
IPH is one a of the leading intellectual property (IP) firms in both Australia and Asia. IPH’s services include providing protection, commercialisation, enforcement and management of IP in over 25 countries in throughout the Asia Pacific region. IPH’s clients are predominately blue chip multinationals domiciled in the USA, Europe and Japan.
This client base is sticky, with IPH’s top 20 clients having been clients for over 10 years. IPH through its number one market share, both in Australia and Singapore, is able to leverage its efficient operating system to deliver exceptionally strong growth in earnings with margins that are well above industry standards.
IPH is a quality business that has high margins, solid earnings growth, high return on equity, strong cashflow conversion and a great balance sheet, allowing the group to pay attractive dividends.
The company also has a quality management team with CEO David Griffith having been with the company since 1974. The company also has a high quality client base, dealing with c125 of the Fortune 500 companies globally.
Business Update
IPH has been under some short term pressure with the stock down circa 40% since its high of $9.20 back in January of this year.
In a recent update to the network, Morgans analyst Alexandra Clarke discussed the potential reasons as being a delay in finalising future acquisitions relative to market expectations, a stronger AUD and also the release of founders shares from a two year escrow period, which expires next month. With the market knowing about the expiry of this escrow period, any institution looking to enter the stock, may well be holding off to participate in any block trade which may come from the shares being released from the escrow.
We see the current weakness as an opportunity to buy a quality business at a reason price. At current prices the stock is trading on 17.5 times 2018 earnings while offering 15 per cent earnings per share (EPS) growth and a dividend yield of 4.5pc per annum, generating a return on equity (ROE) of 25pc. Relative to the market, we view this as being attractive. Morgans has a 12 months valuation and price target of $7.47 per share, offering 30pc upside to current prices.
- Boh Burima Financial Adviser | Authorised Representative: 000341081, Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410.