IPH Ltd (ASX: IPH) is a services group comprising law firms that specialise in intellectual property and how best to navigate the challenging world of patents and trademarks. Having listed in 2014, it was originally formed in 1887 under the banner of Hepburn & Spruson.
Why I Like IPH Ltd
Traditionally, I have steered clear of services-based businesses as the constant need to ‘hunt’ customers often results in unpredictable earnings and any surplus capital being spent on marketing and sales efforts. However, I believe IPH is different due to the nature of their services.
Long-term Customers
As a starting point, its customers are long-term in nature. Due to the complexity of the patent process, companies are more inclined to work exclusively with the one firm instead of splitting the work across multiple firms looking for the cheapest offering.
Scale
Due to its scale, IPH can assist a company through the entire patent and trademark process, effectively creating a trusted advisor relationship with the customer. This process is also extensive with some patents taking 5 – 7 years just to be granted! However, as an investor, this is perfect as it provides a recurring revenue stream for the business.
The size of IPH also ensures it offers clients a one-stop-shop for all their Asian Pacific patent needs. With offices across the region, IPH is perfectly positioned to help global companies looking to bring product or services to the growing region. This scale also provides an opportunity to consolidate back-end operations across the region (e.g. case management, HR, finance, etc.) to ensure lower start-up costs and higher margins.
Industry Fragmentation
Like many service providers, the industry is fragmented where many smaller companies often compete for the same business. With its market share and scalability, I believe IPH is ideally placed to capitalise on any industry consolidation and aggressive buyouts.
Consolidation in any industry carries a certain level of risk and there is always danger in overpaying for a poorly run business.
As a long-term investor, I will be looking at this strategy very closely for its continued success.
What Now?
The growth of the Asian region and the continued need for regulatory measures are the two main reasons why I invested in IPH. As a marker leader, I am confident this company can grow at a considerable rate.
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Disclosure: At the time of writing, Anthony owns shares of IPH Ltd.