IPH Ready For Further Expansion

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The acquisition of Smart and Biggar opens up a pathway to replicating the consolidation success IPL Ltd has experienced in Australia in the Canadian market. 

-IPH's acquisition of Canada’s Smart and Biggar provides a platform for further consolidation of Canadian market
-Company has a proven track record of successfully integrating acquisitions and delivering synergies
-Asian operations have continued to outperform expectations

By Danielle Austin

Analysts largely expect the acquisition of Canadian-based Smart and Biggar to provide a platform from which IPH Ltd ((IPH)) can pursue a consolidation strategy in a new market. The company has completed the acquisition for an initial purchase price of CAD282m, with a further potential earnout of CAD66m. 

With an aim of consolidating secondary, and typically fragmented, intellectual property services markets, IPH is the banner for a network of intellectual property businesses. Currently the leading intellectual property services group in Asia Pacific and Canada, IPH has a proven track record of successfully integrating acquisitions and delivering synergies.

The purchase of Smart and Biggar could signal IPH’s intention to pursue other Canadian-based acquisitions over the medium-term. According to some market observers, IPH has proven itself to be a well-placed and relatively defensive stock. 

Opportunities ahead

Analysts have outlined a number of key opportunities available to IPH moving forward. Firstly, the company could look to pursue bolt-on acquisitions in Canada to further gain market share.

Secondly, the company may look to enter a new secondary intellectual property market such as Brazil or South Africa, likely through the acquisition of a leading patent filer.

Thirdly, analysts see potential for IPH to seek out adjacent business in translations services, patent renewals, or intellectual property software. 

Goldman Sachs (Neutral, target price $10.90), not one of the brokers monitored daily via FNArena's Australian Broker Call Report, has most recently responded following IPH's Canadian acquisition by lifting earnings per share forecasts 8.1%, 14.3% and 13.0% through to FY25. 

Similar to IPH’s approach in the domestic market, Goldman Sachs considers the purchase a potential catalyst for the company to make further Canadian-based acquisitions going forward, with the region seen offering inorganic growth potential.

The broker expects relatively stable earnings from the company’s Australian and New Zealand operations to provide a solid platform, while Asia should prove the company’s fastest growing region as it pursues growth in adjacent markets by leveraging off its Singaporean operations. 

Recently initiating coverage on IPH, UBS (Buy, target price $11.00) likes IPH’s leading market positions in Australia, New Zealand, Singapore and Canada, as well as the stock’s defensive qualities, which this broker finds attractive in current volatile market conditions.

UBS estimates 8% of IPH’s 14% annual earnings growth between FY17 and FY22 can be attributed to acquisitions in the Australia & New Zealand market, made with an aim of sector consolidation. 

This broker expects Canadian acquisition synergies, alongside ongoing growth in the Asian market, to drive 4% annual earnings growth through to FY26, or a 6% earnings per share compound annual growth rate. UBS anticipates future mergers and acquisitions will be a key driver of the stock, and support further upside to forecasts. 

Other brokers covering IPH are mostly positive, stockbroker Morgans being the exception, suggesting a better entry point will be found after an anticipated share price decline, as the share price rallied on the back of the announcement of the pending acquisition.

Morgans rates the stock as Hold, with a target price of $10.63.

Macquarie (Outperform, target price $11.95) found the move into another large secondary intellectual property market to be of strategic value.

Two other brokers not monitored daily by FNArena, Jarden (Buy, target price $11.37) and Canaccord Genuity (Buy, target price $11.65) both found the purchase to offer IPH scale in the Canadian market, while also noting the company’s Asian operations continued to outperform expectations.

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