Analyst view on IPH

IPH: Likely to Be Affected by Trade Tensions, but There Are Still Positives

May 8th 2025, 12:00 am AEST

IPH: Likely to Be Affected by Trade Tensions, but There Are Still Positives

In its latest presentation, IPH noted that intellectual property protection—the core of its service offering—remains essential amid current market volatility, partly driven by tariffs enacted by the new US administration.

Why it matters: We expect IPH to face headwinds from prevailing trade tensions. The firm mainly serves foreign clients filing patents in its jurisdictions, which are secondary markets that are usually considered for filings only after successful patent grants in more developed markets. Trade tensions could introduce uncertainty, prompting foreign clients to prioritize filings in primary/core markets tied to manufacturing or market access, while scaling back on new filings in secondary regions like those served by IPH.

The bottom line: We lower our fair value estimate for no-moat IPH to AUD 5.30 per share from AUD 5.60, reflecting anticipated softness in new patent filings over the medium term. Nonetheless, we believe the market is overly pessimistic on IPH's prospects, and downside risks are more than priced in. Around 30% of revenue comes from new patent applications. The remaining 70% is generated from existing work in the system—primarily progressing prior applications through to grant, including some from local clients filing domestically—a process that can take up to six years. There is also latent growth from clients located closer to IPH's footprint. Notably, China is expected to increase its global patent filings, especially in artificial intelligence, where it currently leads other nations. IPH, with its large presence in Asia and Australia, is positioned to benefit.

Between the lines: We assume tariffs will be softened and negotiated away over time, limiting the risk of lasting earnings deterioration. Additionally, IPH could see support from cost reductions tied to earlier acquisitions, as the business pivots toward organic growth and operational efficiency.

IPH is a strong contender in the field of intellectual property services. Its large market presence supports business wins, and the lengthy lifecycle of intellectual property protection prolongs its revenue stream. The largely transactional nature of its work supports more stable cash generation relative to other legal services firms that rely more on litigation. However, the firm lacks competitive advantages, posing the risk of potential client losses, which may necessitate lower fees for client retention. IPH is also highly acquisitive, adopts a high dividend payout ratio, and has a mixed track record of extracting synergies from acquisitions. These factors increase the risk of value erosion from high financial leverage, potential share issuances, or earnings dis-synergies. We believe these risks can be mitigated with less aggressive growth ambitions and more balanced shareholder distributions.