The Xenith IP Group Ltd (ASX: XIP) share price has been crushed today following the release of a disappointing half-year result. In afternoon trade its share price is down 20% to $1.95.
Here's what you need to know:
- Revenues from ordinary activities rose 20% to $19.2 million.
- Statutory profit for the half-year fell 59.6% to $1.49 million.
- Underlying pro-forma net profit after tax down 5% to $3 million.
- Diluted earnings per share of 5.2 cents.
Based on the statutory result it's not hard to see why investors have fled to the exits in their droves. Expenses rose sharply from $12.1 million in the first half of FY 2016 to $16.5 million during the current half.
This reduced the company's earnings before interest, tax, depreciation, and amortisation (EBITDA) margin from 26% to just 14%.
Management has pointed to the transformational strategic acquisitions of Watermark and Griffith Hack as the reason behind the drop in EBITDA. The company has had to invest in appropriate corporate resources to manage the transformation ahead of the expected synergy benefits and full period EBITDA contributions.
Is it a bargain buy?
Whilst the statutory profit result was extremely disappointing, I was impressed with the company's top line performance.
If the company can continue to grow its top line at this strong rate and the synergy benefits from the Watermark and Griffith Hack acquisitions are realised, then Xenith IP could yet prove to be a bargain buy.
But until the company has delivered on its promises I think investors should give the company a miss and consider an investment in its rival IPH Ltd (ASX: IPH) instead.
Xenith IP may look cheap now, but it is worth remembering that it could still fall further if things don't go as management plans.
