What happened? Shares in IPH Ltd (ASX: IPH) surged another 12% on Monday to take the 1-month rise to 43% and year-to-date gain within touching distance of 100%! The biggest question in all of this though, is who is IPH Ltd and why haven't you heard of them?
My Foolish colleague Mike King actually noted the potential for the company back in March when the share price was hovering around $4.77 (it closed yesterday at $6.68). The listed entity IPH is the holding company of individual firms Spruson & Ferguson, Practice Insight, and Fisher Adams Kelly, and Mike said at the time "IPH offers advice and services relating to patents, designs and trademarks in Australia and across Asia – a business that is less subject to the economic cycles than most. And while 80% of the top 20 clients have been with the company for more than 25 years, IPH had 3,000+ active clients in the last financial year."
So What? Regardless of the company, investors need to take notice when a company with a market cap of $500 million becomes a company with a market cap of $1 billion in the space of 12 months. This hasn't happened by accident and the most recent share price spurt has been a result of IPH announcing that it had reached an agreement to acquire Pizzeys Patent and Trade Mark Attorneys Pty Limited for $73.6 million, with an additional payment of $13.3 million subject to full year 2016 earnings.
Now What? It's hard to argue that IPH Ltd looks anything but expensive at current levels. With analysts expecting earnings per share of 23.75 cents in the 2016 financial year, and a dividend per share of 19.3 cents, investors are paying a steep 28 times earnings for a 2.8% dividend yield.
The real story however, lies in what growth we'll see in future years. Analysts are predicting that earnings could rise to beyond 30 cents per share in 2017, however I doubt this includes the impact on the Pizzey's business as the acquisition was only announced on Friday night.
If we compare IPH to companies in the same field (legal firms) the company looks even more expensive. The trouble-plagued Slater & Gordon Limited (ASX: SGH) trades on a remarkable trailing price to earnings ratio of just 8, while Shine Corporate Ltd (ASX: SHJ) trades on a relatively undemanding 13.1.
