Long time coming, page-9

Key points:
QIP has downgraded FY17 revenue forecasts to $100-102m (from $112m in the prospectus) due to lower legal and advisory service charges and weaker patent prosecution revenue. The company also called out a slight reduction in Australian patent filings versus the pcp. The EBITDA guidance range of $22-24m is 13-20% below the prospectus forecast of $27.5m.
We are seeking commentary from both IPH and XIP relating to the broad Australian patent filing weakness but QIP did note that the issues seem to be timing related more than structural issues impacting the sector.
Below is a 12m common base chart comparing the price performance of the ASX listed IP companies and they have all been in a clear downtrend as the market reassessed the fair trading multiples for the stocks and the outlook for the sector.

Recommendation:
IPH has FY17 EBITDA guidance in the market for between A$72m and $74m based on an AUD/USD exchange rate of 76.2c. Our forecast currently sits at A$73.1m while we forecast a $16.2m EBITDA for XIP. We like the sector's strong cashflow generation and relative defensiveness and retain an Add recommendation on IPH (FY18 PE of 15.2x) and have a Hold on XIP (FY18 PE of 10.8x we remain cautious given the significant size of the Griffith Hack acquisition).