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Why the Xenith IP Group Ltd share price is rising on today’s results

The Xenith IP Group Ltd (ASX: XIP) share price rose 4% to $1.21 this morning after the company released its half year results. Revenues rose 187% to $63 million and net profit after tax rose 25% to $1.9 million. On an underlying basis, net profit fell 5% to $2.9 million. On an underlying basis, earnings per share were 3.3 cents and Xenith declared a dividend of 3 cents per share.

Xenith’s results were clouded by major acquisitions of law firms Watermark and Griffith Hack (for a combined total of $158 million) and the company experienced significant transaction and integration costs in the half, as well as higher amortisation expenses which impacted the result.

Management stated that there was a strong increase in filing numbers at their Shelston IP business during the half, which is a strong leading indicator of future revenue. The Shelston business is expected to improve, and over the next 12-18 months as the other businesses are integrated.

Xenith seems optimistic that Griffith Hack and Watermark will see a similar uplift.

Xenith reported that its companies finished the year with the #1 spot in Patent Cooperation Treaty (PCT) filings in Australia (13% market share), the #2 spot in patent filings in Australia (17% share) and the #3 trademark filing share in Australia (10% share). Overall patent filing numbers fell 2.2% in Australia in the first half, and fell 1.5% at Xenith.

As of 30 December 2017, Xenith had $16.2 million in net debt, comprising of $3 million cash and $19.2 million in borrowings.

Shares in Xenith have fallen 65% over the past 18 months or so, from above $3 to $1.15 currently. Peer IPH Ltd (ASX:IPH) has also been hammered down 34% in the past month.

Xenith’s fall is due partly due to some business underperformance, as well as complexity from integrating the acquired businesses. Integrating new businesses is complex and there are no guarantees Xenith can make it work. Still, given the total wipe-out of value and the lack of expectations now built into the business, I think now would be a good time to look closer at Xenith IP.

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Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended IPH Ltd. The Motley Fool Australia has recommended Xenith IP Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.