The half year results for the three ASX-listed IP firms continued the pattern of previous financial results with IPH’s profitability well ahead of its rivals.
IPH Limited is the largest of the three firms and was the first to list on the ASX. For the first half of 2018/19, IPH achieved revenue (less agent fees) of $89.2m. Staff costs represented 39% of this revenue and profit before tax was a very healthy $33.3m or 37% of revenue after agent fees.
QANTM Intellectual Property achieved revenue less recoverable expenses of $46.6m. Staff costs represented around 55% of this revenue. Profit before tax was $7.7m, being only 16.5% of this revenue.
Xenith IP achieved revenue after disbursements of $42.4m. Staff costs were 60% and profit before tax only $2.6m or 6%.
QANTM and Xenith are moving towards a merger which will create a combined entity that will match the revenue of IPH.
IPH appears to be doing what it can to stop the merger, even going to the lengths of buying almost 20% of the shares in Xenith. It plans to use its holding to vote against the merger. As IPH holds only 20% of Xenith, it is unlikely that it will be able to stop it.
Was it a rash move to borrow money to buy 20% of the shares of a competitor? Probably not.
Xenith and QANTM have market capitalisations of $129m and $221m respectively. IPH has a market capitalisation of $1.2b. Even taking into account the smaller revenue of Xenith and QANTM, their values are severely marked down at the moment, probably because of their relatively poor track record of profitability.
If the merger goes ahead, and if the combined firm has any success in either growing revenue or reducing expenses, then the share price looks to have plenty of upside from which IPH can ultimately make a profit. IPH has placed its crazy-looking bet with seemingly very little downside. If it manages to ‘spoil’ the merger, IPH will be a winner in terms of maintaining its size-dominance in the market place.