IPH Limited Reports Underlying Profit of $76.2 Million

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IPH Limited Reports Underlying Profit of $76.2 Million

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  • Final dividend of 15.5 cents, franked to 40 percent, full year dividend 29.5 cents
  • Strong cash flow generation of $86.4 million, conservative debt level with leverage ratio 0.4 times
  • Defensive revenue given average 3 years from Patent filing to Patent grant, with dominant market share in Australia and Singapore

IPH Limited (‘IPH’ or the ‘Firm‘) is a well-established Intellectual Property (‘IP’) services firm servicing the Asia Pacific region in 8 IP jurisdictions, extending to more than 25 countries. Its services cover the areas of Patent and design, Trademarks and Legal, by providing for the protection, commercialisation and enforcement of all forms of IP.

Results for financial year to 30 June 2021

IPH earned an underlying net profit after tax of $76.2 million, or 35 cents a share, from which a final dividend of 15.5 cents, franked to 40 percent, will be paid to shareholders on 17 September. This takes the full year dividend to 29.5 cents and is in line with the firm’s dividend payout ratio policy of 80 to 90 percent of cash net profit after tax. The underlying FY21 net profit is down 2 percent on the prior year. Statutory net profit after tax was $53.6 million, or 24.7 cents a share. The major difference to the underlying profit result is the recognition of amortisation expense of intangible assets arising from acquisitions for $21.6 million and business acquisition costs of $3.6 million.

Underlying revenue generation for the year was disrupted by COVID-19 and decreased by 2 percent, to $363.5 million. Cash generation was strong with free cash flow of $86.4 million, which supports the high 85 percent dividend payout ratio. Borrowings of $116.2 million, offset by $71. 2 million in cash, providing net debt at 30 June 2021 of $45 million, down 34 percent on the prior year, implying a conservative leverage ratio of just 0.4 times (Net Debt / EBITDA).

Looking ahead

The long-life cycle of patent applications supports consistent year to year revenues and earnings of IPH. This is because the Patent Cooperative Treaty (‘PCT’) supported by 150 Contracting States around the world, takes 2.5 to 3.5 years from the date of filing to the Patent grant date. This provides a ‘defensive’ element to the earnings nature of IPH.

Future earnings growth is likely to be supported by continued acquisitions and integration of firms and businesses that service the specialised IP market and by organic growth. The organic growth opportunity is driven by ‘the network effect’. The network effect gives clients a seamless way to enter more international markets, as well as enabling group-scale investments in technology and processes, that drive operating efficiencies.

IPH has a strong and growing market presence in Australia, New Zealand and Singapore. It is the market leader in Australia with a combined group patent market share of 36.2 percent for the year to 30 June 2021. The Firm experienced patent filing growth of 8.4 percent across its Asian jurisdictions, excluding Singapore. In Singapore, the Firm strengthened its number one market share of 25.9 percent with a 1 percent increase in patent filings, despite a very strong comparative prior period. IPH is a steadily growing specialist service provider with a clearly identified demand for its services, capable of growing organically and by acquisition.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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