About the author:

James Lawrence
Author name:
By James Lawrence
Job title:
Date posted:
16 October 2017, 8:19 AM
Sectors Covered:
Gaming, Professional Services, Fixed Interest

Buying the #1 market share IP firm in New Zealand

IPH Limited (IPH) has acquired AJ Park, New Zealand's leading patent group with approximately 20% market share, for NZ$66.1m. The group which was founded in 1891 has a substantial local client base ranging from large multinational corporations and universities to start-up companies and entrepreneurs. The firm employs 205 people and has offices in Auckland, Wellington and Sydney.

The purchase price is based on an adjuested FY17 EV/EBITDA multiple of 7.5x which is in-line with historic acquisition multiples. Consideration will be 60% cash (with IPH utilising US$ debt) with approximately 40% of new equity with the new shares issued subject to a two year escrow.

The company generates EBITDA margins in mid-high teens and we believe IPH has the capacity to increase these toward the mid 20% level over the coming years. Furthermore, IPH will be able to utilise its existing strong presence in Asia and offer these services to AJ Park clients, which are currently using competitors of IPH in Asia.

Changes to forecasts

In addition to incorporating the acquisition into our forecasts, we have undertaken further analysis of the underlying growth rates in the Australian and Asian markets. With the AUD/USD currenting at $0.78 we have made minor changes to our currency assumptions as well. After adjusting for these factors our earnings per share (EPS) forecasts increase by 3.9% in FY18, 5.3% in FY19 and 7.2% in FY20.

Investment view

Following the acquisition announcement and the changes to our EPS forecasts we have increased our share price target. Key risks include lower patent activity and filings, adverse foreign exchange movements, integration risk, acquisition risk, key employee risk and increased competition.

We retain our Add recommendation.

More information

Morgans clients can login to view our detailed report and share price target for IPH Limited (IPH). Alternatively, please contact your nearest Morgans office for access.

Disclaimer(s): Morgans Corporate Limited was a Joint Lead Manager to the Block Trade for IPH Limited and received fees in this regard.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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