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Two Small-cap Expensive Stocks - Capilano Honey Ltd + IPH Ltd

Oct 22, 2015 | Team Kalkine
Two Small-cap Expensive Stocks - Capilano Honey Ltd + IPH Ltd

Capilano Honey Limited



Result Overview: Capilano Honey Limited (ASX: CZZ) recently came out with a solid result steered by market share gains, cost control and export growth. The Company reported 40% rise in revenue to $120.8m over the prior corresponding period (pcp) and 70% rise in underlying EBITDA of the order of $13.2m. EBITDA margins also surged by 190bps to 10.9% in comparison to 9.0% in FY14. We do note that CZZ’s 2H15 EBITDA of $6.7m is close to the 1H15 of $6.5m. Earnings per share of 90.9c indicating a 120% rise, were reported. The primary driver of the result was the launch of new products and brands. CZZ reported that there was 43% surge in the domestic revenue. Further, the exports rose 32% or 19% of total sales. NPAT of $7.8m was also touching 70% rise over pcp. The company declared a dividend of 37.5 cents. Still, the result looks little soft owing to the seasonality issues.
 

Sales (Source: Company Reports)
 
Demand Scenario: CZZ reported domestic honey receivals of 9,265 tonnes which is 19.6% above the pcp. The company is expecting a supply surge in FY16 and accordingly putting efforts towards this. The market demand is robust given the retail driven requirement. Also, the demand is expected to rise given the awaited honey season. Further, there seems to be an earnings upside based on the upcoming honey season and future acquisitions.

Stock Performance: The stock is trading at a high P/E ratio of 22.27 and dividend yield is only about 1.84%. The stock has risen about 75% in the last six months. However, given the cyclical performance and other above-discussed factors, we think that the stock is overvalued. Accordingly, we give an Expensive recommendation for this stock at the current price.

 
CZZ Daily Chart (Source: Thomson Reuters)

IPH Limited



Acquisitions in Fragmented Market: IPH Limited (ASX: IPH) has reported updates indicating its solid position to acquire in a mature but fragmented Australian market. The company recently disclosed about the acquisition of Melbourne based Callinans Patent and Trade Mark Attorneys (Callinans) by IPH’s subsidiary, Fisher Adams Kelly (FAK). This deal revolves around a purchase consideration of $11.5m with earn-outs capped at $6m. Along with synergies being achieved, the acquisition may seem to serve as a catalyst for earning accretion. IPH, a little while ago, also announced for the acquisition of Pizzeys Patent and Trade Mark Attorneys. Pizzey’s expected earnings before tax and interest for FY16 are $11 million. This acquisition is expected to bring synergies from fast tracking the setting up of a Pizzeys Asia office and marketing Asia filings to the US client base. Further, the market expects efficiencies in domestic IP acquisitions through rerouting of Asian patents through the offshore. From international position standpoint, IPH has its servicing hubs in Singapore along with Australia. The company is all set to bank on international clients while intending to expand footprint in Asia-Pacific region. However, few risks to be wary of include regulatory risks to patent laws, risks relating to patent filing management, competition risk, foreign exchange risk, and acquisition risks.

 
Market Share (Source: Company Reports)
 
Stock Performance: The stock has now almost doubled the IPO price while delivering good 100% returns to shareholders. But the niche segment of Intellectual Property is yet to gain attention from many. The stock is trading at a P/E ratio of 36.14x and the annual dividend yield is only 1.91%. We believe that the stock is trading at an expensive valuation given the segment which is yet to be fully explored.
 
 
IPH Daily Chart (Source: Thomson Reuters)

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