Iress Ltd


IRE Details

Earnings impacted by one-off costs and currency movements: For 1HFY17, Iress Ltd (ASX: IRE) has reported a statutory net profit after tax of $29.5 million, up 10% over the previous half (six months to 31 December 2016) and down 10% over the prior corresponding period (six months to 30 June 2016). NPAT performance difference between corresponding halves reflects the impact of non-recurring items, movements in currency, amortisation charges on recently-acquired business and movements in interest and tax charges. Operating revenue increased to $211.8 million, up 8% on 2H16 and 9% on 1H16. Importantly, segment declined marginally to $59.6 million, down 1% on 2H16 (down 2% on a constant currency basis against 2H16) and down 6% on 1H16 (down 3% on a constant currency basis against 1H16) due to one off costs associated with client and internal people activities. Excluding these one-off costs, segment profit would have been up 3% on the previous half. Cashflow conversion remained high at 91%, in line with the previous half. The impact of currency movements on revenue and segment profit over the prior corresponding period was quite visible.
 

Financial summary; (Source: Company reports)
 
The company’s financial results for the first half of 2017 reflect its investment in the critical client projects, and which will be realised during the second half and in future periods. IRESS’ net debt balance stood at $175 million at a leverage ratio of 1.47x Segment Profit as on 30 June 2017.

Stock Performance: The stock has moved up 10.7% in the past six months, while it is up 15.9% in the last one year (as of August 17, 2017). However, the stock price fell 2.8% on August 18, 2017 at the back of the latest result. Given the increasing operating costs for financial services business and otherwise contracting margins, we give an “Expensive” recommendation on the stock at the current market price of $12.02
 
IPH Ltd


IPH Details

Change in patent filing trend: For FY17, IPH Ltd reported (ASX: IPH) an 11% yoy (year on year) growth in statutory Net Profit after Tax (NPAT) at $42.9m, that yields diluted earnings of 22.3c/share. The underlying NPAT for the year increased by 9% to $51.2m over the previous corresponding period. Excluding the impact of the further investment in the Data and Analytics software division, the diluted EPS grew by 8% on a statutory basis and 6% on an underlying basis. Underlying EBITDA increased by 10% on the corresponding period to $71.6M. However, the strengthening of the AUD relative to the USD in June led to the recognising of unrealised exchange losses on the revaluation of USD dominated cash and receivables balances of approximately $700k. IPH further stated that applying an AUD/USD exchange rate of 76.2c as provided with the company’s EBITDA guidance of $72M-$74M in November, the reported underlying EBITDA would have been more than $72m and within guidance range.
 

Revenue & EBITDA; (Source: Company reports)
 
The results represent a modest performance considering the extremely strong comparative year of FY16, where the America Invents Act caused a spike in patent filings in the regions in which IPH operates. As expected, the company has witnessed a slight decline in filings from US clients in the current year; however, this has been offset by growth in filings received from the rest of the world, and IPH expects filing trends to normalise in FY18.

Stock Performance: The stock has declined 24.5% in the past one year (as at August 17, 2017), owing to impact from change in number of filings and adverse movement in currencies. With the recent result, the stock fell 3.4% on August 18, 2017. Further, increasing competition in the operating regions and continuous dollar fluctuation pose some challenges. We give an “Expensive” recommendation on the stock at the current market price of $4.49

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