Goldman Sachs February 2023 report - pre- data breach.It is not...

Goldman Sachs February 2023 report - pre- data breach.
It is not a good look for an Intellectual Property Management firm to have a data breach IMO

NeutralIPH Ltd.(IPH.AX)1H23 Result Review: On track for a solid FY23; Cost out and acquisitions to drive growth; Neutral16 February 2023 | 7:24PM AEDTIPH has reported a solid 1H23 result, beating GSe on EBITDA and NPATA by 3%. Key drivers of the beat were lower corporate costs/share based payments and better margins from the recently acquired Canadian business, Smart & Biggar. The company announced an organic revenue growth initiative in ANZ and efficiency drive (as part of the previously announced IPH Way) which is expected to deliver A$5-6m p.a. of ongoing benefits by FY25, with one-off costs of c.A$3m p.a. to be booked in FY23 and FY24. We believe this signal prudent cost management by the company given it operates in relatively mature markets in ANZ, Singapore and Canada. China and South East Asian markets offer more organic growth optionality but are also more volatile. Overall, IPH has a reasonable mix of exposures to deliver modest earnings growth. Growth over and above our forecasts will likely be driven by further acquisitions, either in Canada or other secondary IP markets.Outlook: IPH is now cycling a comparative period in ANZ post the brand merger of S&F/Shelston IP, which has caused disruption and a fall in market share. We look for a stabilization of ANZ market share in coming periods. The IPH Way initiative may provide some upside in market share and margins as it's implemented over the forecast period.In our view IPH is a well-placed, relatively defensive stock, set to deliver consistent earnings with modest organic growth. Asia should be the fastest growing region for IPH (c.10% volume growth p.a. over the medium term), as the company leverages its strong market share in Singapore to grow in other Asian markets. We expect relatively stable earnings in the A/NZ business and expect market share to stabilise at c.30% following some share loss related to the integration of acquisitions. We anticipate some fluctuations year to year based on the filing activities of larger clients; however, we expect IPH's client base to remain stable.Post the completion of the recent acquisition of Canadian-based firm, Smart & Biggar, Canada now provides a new platform for inorganic growth for IPH. We believe the Canadian market is similar to Australia in maturity and incorporate c.2% revenue growth p.a. over the medium term. We have factored in c.A$5mn of total cost-out in S&B over FY24/FY25 as indicated by the company.What was reportedAustralia/New Zealand: As flagged in the AGM trading update, the Australian patent market was weaker in 1H23 vs. pcp, down 4.3% on a strong 1H22. IPH's filings fell 7.7% in 1H23, with Spruson & Ferguson performance disrupted by the integration of Shelston IP. Griffith Hack patent fillings were also down YoY in-line with market conditions. IPH group market share slipped to 32.4% in 1H23 vs 34% in FY22 and 38% in FY20.Asia: IPH saw momentum in filings slow across its Asian network, with patent filings in Asia ex. Singapore flat YoY. Growth in Malaysia, Hong Kong and Indonesia was offset by a 22% fall in China filings. IPH highlighted the attractiveness of the network to clients, seeing multiple large clients increasing filings across jurisdictions. Based on preliminary data, the Singapore patent market was down 3% YoY (based on the first 9 months of CY22), with IPH's market share down ~60bps to 23.4% (still number one in market share).Canada: Smart & Biggar performed above our expectations, with IPH working to bring a broader international offering to the division. To date, the IPH network has contributed to 80+ international client referrals.Outlook: IPH has reiterated it is considering further acquisition opportunities in Canada and other core secondary IP markets.Earnings & Target Price ChangesWe have made minor changes to earnings following the 1H23 result. FY23/FY24/FY25 EBITDA has increased by 0.3%/0.4%/2.1%, with the outer year changes driven by efficiency benefits coming though from IPH Way. Our EPS estimates fall by -6%/-1.2%/-1.4% as a result of slightly higher tax rate than forecast and cost of debt assumptions, although we note IPH has largely fixed its interest rates so should not see a meaningful increase in cost of debt in the medium term, despite GS expectation of further cash rate rises.Our 12-m Target Price falls 5% to $10.45ps as a result of the forecast changes. We estimate IPH should deliver 3-yr EPS CAGR of 6.6%. Our TP offers a total return of 23%, which is below the median of our coverage universe, and we reiterate our Neutral rating.Exhibit 1 : Our 12m TP changes by -5% to A$10.45Source: Goldman Sachs Global Investment ResearchPrice Target Risks and Methodology - IPH Ltd.We are Neutral-rated on IPH with a 12m TP of A$10.45.Our 12m TP remains based on 50:50 blended DCF and P/E, with a 3.5x 'inorganic growth' uplift to the implied P/E of our blended valuation to capture future acquisition activity. Our A$10.15 DCF value is based on a 2.5% terminal growth rate and 7.8% WACC. Our A$7.95 P/E valuation uses a 3.0x PEG, which derives an 19.9x multiple on FY22 EPS.Key risks: (+): future M&A is more accretive than we have factored into our valuation; stronger organic growth; favourable foreign exchange movements. (-): regulatory risk, key personnel risk, foreign exchange risk, integration risk ??? particularly relating to XIP, acquisition risk.IPH is the holding company for several intellectual property (IP) advisory firms offering IP and Trademark services to a mix of Fortune 500 companies, multinationals and research institutions spanning the patent/trademark life-cycle. It has a leading market share in ANZ and Singapore, and is seeking to expand further in other markets including China. In our view IPH is well-placed to deliver consistent earnings with modest overall organic growth. Asia should be the fastest growing region for IPH (c.10% volume growth p.a. over the medium term), as the company leverages its strong market share in Singapore to grow in other Asian markets. We expect relatively stable earnings in the A/NZ business and see market share stabilising at c.30-35%. We expect the next factor to watch for will further consolidation of the Canadian market and/or an acquisition in a new secondary market (e.g. South Africa, South America, or Eastern Europe). At c.20x FY23E P/E, we think IPH's relatively defensive earnings are well understood by the market, and with modest organic growth potential, we remain Neutral.