IPH Ltd (ASX: IPH) released its first half year results for FY19 to the market with its net profit after tax (NPAT) up 22.8% to $24.2 million, along with its interim dividend up 4.3% to 12 cents per share (cps) with 50% of the dividend franked.
The market seemed disappointed with IPH’s report, sending its shares down as much as 7% to as low as $5.64 in early trading.
IPH is an intellectual property services firm which offers a wide range of IP services and products, including patents and design. It services Australia, New Zealand, Papua New Guinea, the Pacific Islands and Asia.
Key Results
IPH handed down solid results on paper, including:
- Revenue up 23.4% to $125 million
- EBITDA up 27.7% to $40.6 million
- NPAT up 22.8% to $24.2 million
- Earnings per share (EPS) up 21.4% to 12.2c
- Interim dividend up 4.3% to 12cps.
Like-for-like Profit Exclude Acquisition Costs… And Other Stuff
Management said that its underlying EBITDA increased 22% to $40.4 million and its NPAT increased by 15% to $27.9 million (watch this video: What EBITDA means). In what appears to be a common theme from management this reporting season, they have excluded costs related to acquisitions to calculate ‘underlying earnings’ when the company has a history of acquiring companies.
Another thing worth noting in the calculation of underlying earnings was the removal of share-based payments provided to employees as an incentive, including directors.
Another Acquisition Ahead?
Just yesterday IPH announced they had acquired a 19.9% stake in competitor Xenith IP Group (ASX: XIP), which appears to be an attempt at blocking a merger between Xenith and another competitor Qantm Intellectual Property Group (ASX: QIP). However, both Xenith and Qantm appear to want to proceed with their merger of equals.
Verdict
While I freely admit that the intellectual property market is outside my circle of comfort, a merger or acquisition of either IPH’s two competitors Xenith or Qantm makes no sense on a valuation level for me.
It also is a business that is heavily reliant on the expertise of its employees who are free to leave at any time. For this reason, it reminds me of Slater and Gordon Ltd (ASX: SGH) who aggressively acquired competitors as part of an industry consolidation before exploding in spectacular fashion.
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