There's a particular ASX share that fund manager Alex Milton from NovaPort Capital thinks is an opportunity – IPH Ltd (ASX: IPH).
What is IPH?
Intellectual property is an increasingly important asset in today's world. The business has around 1,000 staff spread across a number of different places including Australia, New Zealand, Singapore, Malaysia, China, Indonesia, Thailand and Hong Kong.
The ASX share has a wide-ranging customer base comprised of huge global businesses, public sector research groups, smaller businesses and professional service firms.
Over the last decade, it has acquired a number of different IP businesses including Spruson & Ferguson, Fisher Adams Kelly, Callinans and Pizzeys Patent and Trade Mark Attorneys in Australia, Ella Cheong (Hong Kong) Limited and its subsidiary Ella Cheong Intellectual Property Agency (Beijing) Company Limited in Asia and AJ Park in New Zealand.
It also acquired Xenith IP Group a couple of years ago.
How has the business been performing recently?
Over the last year the IPH share price is down around 8%. However, it's currently going through a bit of a recovery, with the share price up 9.25% over the last month.
The market had a strong positive reaction to the IPH FY21 half-year result at the time of the release.
IPH's numbers were largely flat. Revenue was unmoved year on year at $179.8 million. Statutory earnings before interest, tax, depreciation and amortisation (EBITDA) fell 1% to $56.7 million, statutory net profit after tax (NPAT) declined 1% to $26.8 million and diluted earnings per share (EPS) fell 4% to 12.4 cents.
The underlying result, which excludes items like non-cash amortisation of intangible assets, was a little better with underlying EBITDA growth of 2%, underlying NPAT growth of 3% and underlying EPS growth of 1% to 17.4 cents.
Operating cashflow increased by 39%. The interim IPH dividend was increased by 4% to 14 cents per share.
Despite all the impacts of COVID-19, IPH was able to achieve profit margin improvement and achieve synergies from its acquisitions.
The company remains the market leader in Australia, as well as Singapore.
Why is the IPH share price a misunderstood opportunity?
When asked by Bella Kidman from Livewire Markets about a misunderstood opportunity, fund manager Alex Milton named IPH and said it has a strong balance sheet, high margins, good cashflow and good market share locally, with promising growth potential internationally across Asia.
One of the reasons to like the business is that it has proven to be defensive even through difficult economic periods such as COVID-19 as well as the GFC. IPH was one of the ASX shares that NovaPort Capital invested in during the market declines in 2020.
The fund manager pointed out that the earnings were being impacted by the stronger Australian dollar. Mr Milton believes the market is undervaluing the business and its positive potential.
According to Commsec, the IPH share price is valued at 20x FY21's estimated earnings.
