Astute management of intellectual property never more critical
There has never been a more active time in terms of intellectual property including new ideas, concepts, equipment, technologies and drugs being developed and commercialised.
What with the Internet of Things (IOT), big data, increased use of smart phones, Blockchain money transfer, power saving devices and myriad cloud-based products and apps, it is no wonder that the word disruptive pervades nearly every sector of the market.
There was even evidence this week that the normally slow-moving manufacturing sector has been flipped on its head with the emergence of electric car group, Tesla overtaking Ford Motor Company based on stock market value.
With a market capitalisation approaching $50 billion, it has only taken Tesla 15 years to overtake Ford, a US auto icon with a 100 year history.
Here is a list of 10 companies at the cutting edge of their industries, which highlights the broad cross-section of sectors that are now affected by the emergence of new technologies.
The following companies are in the early stages of life and growth and therefore investors should seek professional financial advice before considering these stocks for their portfolio.
Pointerra (ASX: 3DP) is setting the benchmark in terms of managing, visualising and sharing 3D imaging data, a concept which is has multi-industry applications from knee reconstructions to aerospace design.
3DP is not just another player looking to cash in on the geospatial technology industry, it is breaking new ground in creating the software and hardware that will allow users of geospatial technology to operate more efficiently, maximising the advantages the technology offers.
The company continues to work with several Tier-1 strategic partners from the engineering, technology and aerospace sectors who are typically embedding the group’s technology into their broader 3D digital asset management, data analytics and data capture offerings.
Activistic (ASX: ACU) has a range of apps and technologies which seamlessly connects and engages the world’s 2 billion smartphone consumers with charities and causes through its proprietary micro-donation technology.
As recently as February the company was instrumental in launching Magpie Millions, the first of its kind community focused secondary lottery in Australia through its Sports Lottery Australia business.
There has been strong interest from the AFL community and management is in advanced discussions with other major teams who aim to develop and commercialise similar products.
Collaborate Corporation (ASX: CL8) has made strong inroads into the collaborative consumption industry with its DriveMyCar product leading the way.
The group has a proprietary trust and reputation platform, www.peerpass.com.au that underpins its involvement in the rental market which brings together third parties looking to rent out a particular asset and those looking to rent that asset in an easily manageable fashion where risks are managed in such a way that they protect all parties involved.
Such is the company’s progress in the sector that it has received support from major auto manufacturers such as Subaru, as well as coordinating a rental model with UberX drivers.
Creso Pharma (ASX: CPH) is a company that has run on the back of increasing interest in the medical cannabis industry. This has not only been driven by increasing endorsement of medical cannabis products by industry bodies, but it is also benefiting from regulatory changes which now allow the use of medical cannabis.
However, it too has needed to be active in registering and protecting newly developed products across its cannabidiol (CBD)-based human and animal nutraceutical products. For example, in January 2017 in partnership with Greveling Holding BV, CPH was awarded European Union (EU) registration for two CBD based nutraceutical products.
In March, the company broadened its product pipeline through the negotiation of a binding Letter of Intent (LOI) with Domaco to develop and commercialise two new human and one new animal health nutraceutical products.
This suggests the company will continue to be active in the development of new products with associated underlying intellectual property needing to be managed and protected.
Connexion Media (ASX: CXZ) specialises in developing and commercialising smart car software apps and services for internet-connected vehicles and mobile devices.
In February, CXZ was awarded Gold Status Partner by Microsoft in recognition of its unique and innovative vehicle telematics solution and leading position in connected car SaaS sales globally. Connexion joins other brands such as Citrix, Docusign and HP, which are also Gold Status Partners.
CXZ has two core products in commercialisation, Flex and miRoamer. Flex is a highly sophisticated smart car solution that allows car fleet managers to manage an entire fleet of vehicles from a mobile phone or computer and deliver cost efficiencies through reduced maintenance costs.
miRoamer is a next generation internet radio product that allows users to pick up radio stations from broad geographies, including international stations. miRoamer has become the world leader in internet radio technology, delivering a superior understanding of the technical, content and marketing demands.
DigitalX (ASX: DCC ) is a Blockchain-enhanced software solutions group disrupting the payments industry. The Company’s flagship product, AirPocket allows consumers to make secure and cost-effective money transfers worldwide. Companies can use DigitalX’s AirID technology to leverage the benefits of the Blockchain.
AirPocket is the first Blockchain-enhanced mobile payments application available in the world, effectively allowing US AirPocket users the ability to make low cost international money transfers across 14 countries in Latin America.
To provide a very basic explanation of the technology, a Blockchain is a public ledger of all Bitcoin transactions that have been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings.
Imugene (ASX: IMU) is a clinical stage immuno-oncology company headquartered in Melbourne, Australia. Its lead product is HER-Vaxx, a B Cell peptide vaccine for the treatment of gastric cancer. The company is also developing mimotope-based immunotherapies against validated and new oncology targets.
In February, IMU received a Notice of Acceptance from the Australian Patent Office for Patent Application 2016250289 titled “A vaccine composition and uses thereof”, which protects the company’s HER-Vaxx cancer immunotherapy, currently in development for gastric cancer.
K2fly (ASX: K2F) is an enterprise asset management technology group specialising in the provision of infrastructure asset management to asset intensive industries via a software technology platform and consulting service.
The company’s technology allows an organisation to manage and maintain its asset data, delivering more effective and efficient outcomes via a single centralised system.
Proprietary asset management and asset maintenance technologies used in vertically integrated asset intensive industries that are owned by K2F include the following:
ADAM – Asset Data Analysis Management
Novin – Real time asset inspection management app
DocMan – mobility solutions task management app
HandoverNotes – mobility solutions electronic information sharing app
Quantify Technology Holdings (ASX: QFY) is a unique and disruptive player in the multi-billion dollar Internet of Things (IOT) market. The company’s flagship Q device which is used in the construction industry was recently awarded Australian and New Zealand certification.
However, perhaps of equal importance was this week’s announcement that software pioneer and former high profile Microsoft executive, Alan Boyd, had been appointed as a key advisor in formulating the company’s entry plans into one of the world’s largest economies via the Chinese Government’s 300 Smart City program.
In a strong endorsement of QFY’s technological expertise, Boyd referred to the company as ‘technology at its best’, adding that it had ticked a box in the IOT industry that had been conspicuously unticked for too long.
Furthermore, he described the company’s progress in addressing one of the most difficult problems of the IOT as an ‘elegant solution’, suggesting management’s goal of redefining the IOT industry standard is not beyond its reach. This is consistent with the intense IP management activity that is occurring in the IOT space.
Respiri (ASX: RSH) completed its core technology software platform development and design of the latest generation AirSonea smartphone app in January. This proprietary technology has been designed to help asthmatics better monitor and manage their condition while staying in control of symptoms, leading to a better quality of life.
Using sensors, proprietary algorithms and analytics to quickly, easily and objectively measure the major symptoms of asthma and wheeze, the latest generation AirSonea app allows users to set preventer medication reminders, log symptoms, allergic triggers and reliever medication doses.
The device lets patients view all trends and graphs seamlessly so the relationship between asthma symptoms and triggers and response to medication can be understood in an instant.
Importantly, this core technology has provided the basis for the development of a state-of-the-art wireless overnight monitoring product which is being overseen by high profile personnel at the University of Manitoba in Canada.
Do I buy the proprietary technology or the manager of the intellectual property
There is a common denominator that underpins any evolution in any sector and that is the need to astutely manage intellectual property (IP).
This involves thorough investigation regarding the potential to patent a product, followed by registration procedures which normally include not just the product itself but any complementary additional products that may be developed.
Having registered products, it is then a matter of closely monitoring the market to ensure they haven’t been copied or reengineered. Should breaches be identified, as is the case with all of these other procedures, specialised legal advice and services are required.
Such has been the increased demand for legal services spanning the protection, commercialisation, enforcement and management of a broad range of intellectual property that relatively large companies focused on addressing specifically those disciplines have emerged.
So the question has been raised as to whether one is better investing in the IP manager, which indirectly provides diversification across sectors and stocks, or whether to single out certain companies that appear to have compelling proprietary technology.
For those who lean towards investing in IP managers, the field has broadened since IPH (ASX: IPH) paved the way in 2014.
Specialised IP management companies list on ASX
IPH (ASX: IPH) was the first of three such companies to list on the ASX. It debuted in November 2014, followed 12 months later by Xenith IP (ASX: XIP), and then in August 2016 QANTM Intellectual Property (ASX: QIP) listed on the ASX.
Interestingly, IPH was afforded market darling status after it listed with its shares hitting a high of $9.42 in January 2016, a premium of 350% to the IPO price of $2.10.
Of course it should be noted that share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.
The share prices of all three companies have come under pressure in the last 12 months for various reasons. There is no doubt that the demise of Slater and Gordon (SGH) and the poor performance of Shine Corporate (ASX: SHJ) has cast a shadow over the sector.
However, it would be folly to lump the three IP legal enterprises in with two companies that have demonstrated both poor performances and questionable corporate responsibility.
It is also worth noting that the margins available in the IP market segment are generally superior to those that can be achieved in the highly competitive litigation areas such as family law and compensation claims.
The following three players are worth considering, and it was as recently as mid-March that Bell Potter analyst, Sam Haddad ran the ruler across the sector, noting that all stocks were trading well below market PE multiples.
More specifically, Haddad said, “We believe this (discount) is unjustified and presents an attractive buying opportunity with our preferred picks being QIP and IPH.
The analyst’s buy recommendation on IPH is supported by a price target of $7.90, suggesting there is 60% upside to the company’s current trading range which is in the order of $4.90.
Note, the following broker projections and price targets for each of the companies listed below are only estimates and may not be met.
Haddad sees IPH as strategically positioned to expand into Asia Pacific region, particularly given it already has a presence in South-East Asia as the leading IP firm in Singapore.
Haddad also expects IPH to benefit from market share gains across the Asian region as it leverages off its Singapore operations.
While acknowledging that the Australian business is relatively mature he also noted that the market remains fragmented with the prospect of further growth by acquisition initiatives.
Haddad is forecasting the company to generate sales growth of 34.5% in fiscal 2017, equating to revenues of $192.5 million. He expects the company to deliver an underlying net profit of $53.9 million representing earnings per share of 28.2 cents.
QANTM Intellectual Property
QANTM Intellectual Property (ASX: QIP) is the owner of Davies Collison Cave (DCC) and FPA, two professional IP services firms which have a substantial market share in Australia.
Haddad noted that QIP also has an emerging presence in Asia following DCC’s opening of an office in Singapore in July 2015.
The company’s services include the creation, protection, commercialisation and enforcement of IP rights, and Haddad highlighted that it also generates a significant proportion of revenue from strategic advice not related directly to the various IP application processes.
His buy recommendation is supported by a price target of $2.70 representing a premium of nearly 50% to Friday’s closing price.
Haddad expects the company to be able to generate significant growth through the realisation of productivity/synergy opportunities, which should translate into improved margins.
It is worth noting that the company has only been a listed entity for approximately seven months, indicating it is yet to realise the full benefits of increased access to capital. Furthermore, there is often a period of transition between listing and achieving optimum operational efficiencies.
Consequently, it may be better to attribute a valuation based on the company’s prospects in its first full year as a listed company in fiscal 2018.
Haddad is forecasting QIP to generate a net profit of $18.8 million from revenues of $87.8 million in fiscal 2018, representing earnings per share of 14.9 cents. This implies a relatively attractive PE multiple of 12.5 based on the company’s current trading range.
The analyst is forecasting a dividend of 11.9 cents in fiscal 2018, implying a yield of more than 6% relative to Friday’s closing price.
Xenith IP Group
Xenith IP Group (ASX: XIP) is also trading at a steep discount to Haddad’s price target of $3.60. The company’s shares have slid from a high of $3.93 nearly 12 months ago to a low of $1.95 in late February.
However, they seem to have found a base around that level, and with forecasts pointing to a relatively strong growth outlook between 2017 and 2019 it may be one to target.
XIP is also the cheapest stock on a fiscal 2018 PE multiple basis. Haddad expects the company to generate a net profit of $16.5 million in 2018 representing earnings per share of 19.7 cents.
This implies a PE multiple of 10.6. The company also looks attractive from a yield perspective with the analyst’s projected dividend of 13.8 cents implying a yield of 6.6%.
Haddad expects growth to come from the integration of recently acquired businesses based in Australia, but he also hasn’t discounted the likelihood of XIP targeting expansionary opportunities in South-East Asia.
Should XIP manage to develop a scalable business model, Haddad sees scope for material margin improvement which could result in some narrowing in the gap between its PE multiple and those of its peers.
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