After a big price drop, is IPH now a buy?
IPH (ASX: IPH) was one of 2014’s hottest floats. It listed at $2.10 and peaked at $9.34 in February 2016. But with its share price now below $5.50, does IPH present an investment opportunity?
IPH is the largest Intellectual Property attorney group in Australia. The company helps a wide range of clients file, protect and renew patents and trademarks, which makes the business model remarkably stable and highly cash generative.
The Australian IP market is mature, though IPH has positioned itself well in the faster growing Asian markets. But its organic growth prospects could not justify the company trading at 47 times earnings in December 2015. The market well and truly ascribed too much value to IPH’s acquisition potential abroad.
We have made the comment before on the blog and we’ll make it again. A company that grows by acquisition does not necessarily grow value for shareholders. While we expect IPH’s future will incorporate some acquisitive growth, we are not inclined to factor acquisitions into our base case valuations. On this basis, the share price is beginning to look more attractive but we still desire a larger margin of safety before investing.
This could arise in the coming months. IPH’s escrow period will soon end, allowing Directors to sell the shares they received in the float. Existing IPH holders may also reduce their positions now that QANTM has floated, which is Australia’s second largest IP attorney group.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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