QIP is the owner of Davies Collison Cave (DCC) and FPA (formerly Freehills Patent Attorneys) (together the ‘Firms’), two Intellectual Property (IP) services firms. QIP is no.2 in total patent filings, with DCC the market leading individual firm in patent filings for local Australian clients. The Firms have a diverse group of long-lasting blue-chip clients serviced by highly qualified teams. Revenues are well diversified with high visibility, underpinned by thousands of invoices (>63,000 in FY15) on work tasks that must follow an IP lifecycle ‘pathway’. Frequent invoicing ensures work-in-progress is minimal and cash conversion is high. More information below, including our detailed initiation report.
Differentiated on several fronts that provide key benefits
Key areas of differentiation include the Firms’:
- Shared industry recognition as high quality ‘premium end’ service providers as reflected by numerous industry awards;
- Strategic focus on local clients which generate longer (hence more forward visibility) and greater revenue opportunity per application, as well as creating greater scope to attract referral work from Foreign Associates; and
- Strengths in strategic advice which is a key service skill that we believe helps establish & build client relationships.
Attractive margin upside and Asian expansion opportunity
We believe there are attractive margin upside prospects for QIP through productivity improvements and synergies between the two Firms. Also, QIP has an early stage office presence in Singapore that we believe lays the foundations of a significant new growth frontier in Asia. We assume a conservative allowance of ~$3m in productivity/synergy benefits by FY20 (with EBITDA margin rising to 27%) and make no allowance for growth in Asia, hence note the scope for upside to our medium/long-term forecasts. Also, acquisition opportunities that accelerate scale benefits add further upside risk.