We initiate coverage of IPH with a fair value estimate of AUD 5.50 per share and assign the firm no-moat, High Uncertainty, and Poor Capital Allocation ratings. Shares are currently overvalued.
The lengthy life cycle of intellectual property protection and IPH’s lower reliance on litigation work allow it to generate revenue from clients over extended periods, minimizing revenue volatility.
Bears
The lack of (1) pricing power, (2) significant barriers to entry, and (3) client contractual terms, alongside the largely transactional nature of IPH’s revenue streams, result in risk of client defections.
IPH provides intellectual property services through its subsidiaries: Spruson and Ferguson, Smart & Biggar, Robic, Pizzeys, Griffith Hack, Applied Marks, and AJ Park. These services include patent filing, prosecution, enforcement, management, design, trademarks, and more. The company’s diverse client base consists of multinationals, public sector research organizations, and local businesses across various industries like healthcare, finance, engineering, and technology. Revenue streams mainly consist of professional fees (fixed) and volume-based fees (linked to the quantity of work performed). About 70% of revenue is derived from pre-existing work in the system, while 30% comes from new patent applications.