Is QANTM (ASX:QIP) an Exciting Opportunity?
By Jason McIntosh | Published 22 October 2021
Jason McIntosh explains why QANTM Intellectual Property [ASX:QIP] could be an ASX stock to buy now. The company owns a range of leading intellectual property businesses. In addition to a 6.2% yield, QANTM is trading at a big discount to its larger rival.
Many of the stocks that Motion Trader identifies have exciting new technology or interesting backstories. This stock doesn’t have either of these characteristics.
But unexciting stocks can produce worthy opportunities.
QANTM is a case in point. With a market cap of $163 million, the company doesn’t qualify for the All Ordinaries (top 500). So it’s fair to say that most people wouldn’t know it exists.
So, what does the company do?
QANTM owns a range of leading intellectual property businesses in Australia, New Zealand, Singapore, and Malaysia. It’s been listed on the ASX since 2016.
Despite some impact from COVID (mostly in the Malaysian operations), the business has been performing well. And this shows through in the full year results to 30 June.
Service Charge revenue was up 2.3% to $92.4 million. But an 11% rise in the Australian dollar masks a stronger underlying result. On a like-for-like currency basis, Service Charges grew by 7.3%.
A similar story played out in underlying EBITDA (earnings before interest, tax, depreciation, and amortisation). Planned investment in the business also contributed to EBITDA falling 2.5%. But on a like-for-like currency basis, EBITDA was up 13.6%.
Encouraging, the company’s saw an 11% rise in patent applications. Much of the growth was in the local market where QANTM grew its market share. The business also continued increasing its Asian presences, which now represents 14% of the group total.
QANTM operates across three business lines. Patients make up 70% of the company’s operation, with Trade Marks (17%), and Legal & Litigation (13%) contributing the balance.
Considering the disruptions from COVID and remote working, I believe this is a solid outcome. It also demonstrates the defensive nature of the intellectual property sector. QANTM says that it has a diverse client base across a broad range of industries and geographies.
Growth and modernisation are priorities for the company. Asia is a key focus for potential mergers and acquisitions, and management say they are pursuing a pipeline of opportunities. This is evident by the recent purchase of a rapidly growing New Zealand based legal tech company — Sortify.tm.
QANTM is investing $8 to $10 million over the next 3 to 4 years in a transformational strategy. They believe this will result in up to $6 million in annual recurring benefits.
As of 30 June, the company had $16.2 million in debt. This is down from $17.6 million on 30 June 2020, and represents a relatively modest gearing level of 18.1%.
An interesting comparison can be made with QANTM’s larger rival IPH Ltd. The price earning (PE) ratio for QANTM is currently around 15 times, whereas IPH is trading at over 30 times earnings. From that perspective, QANTM appears relatively inexpensive.
Okay, let’s jump to the chart.
Have a look at the green lines on the chart. The technical term for this pattern is a “triangle”. This is a common chart formation characterised by its contracting price action.
Triangles typically form during periods of directionless trading. A stock’s price will bounce between the two trendlines before eventually breaking out and potentially forming a new trend.
Some traders try to pre-empt the direction of a breakout. But the lack of momentum makes this a tricky proposition. I believe the best approach is to wait for the market to show its hand.
My preference in these situations is to buy shortly after a breakout. The advantage of this is that you’re possibly getting into a new trend early. This helps to maximise upside potential.
Motion Trader gave a buy signal at $1.16 on 3 June — three days after prices broke higher. It also coincided with the moving averages crossing and the shares hitting a 70-day high.
QANTM has been slow to gather momentum since the breakout. But price action has been encouraging with the shares hitting a 17-month high earlier this month.
Lastly, the company’s dividend for the 2021 financial year was 7.4 cents per share (4 cent interim and 3.4 cent final payment). This puts the company on a yield of around 6.2%.
Where to invest now?
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I'm Jason McIntosh, the creator of Motion Trader. My career began in 1991 on the trading floor at Bankers Trust. Nowadays, I trade my own systems from home in Sydney.
Motion Trader is for investors who value robust analysis, data driven entry and exit signals, commentary, and education. I use engineered algorithms to identify when to buy and sell ASX stocks. No biases or guesswork, just data driven signals.