Monday, 30 January 2017
Patent prospects in an uncertain world
There is only one firm of patent agents which is listed on the stock exchange and which therefore has an obligation to publicise its results and provide guidance on its profit expectations. This is Murgitroyd Group PLC, a business based in Scotland but with a substantial European and worldwide footprint. I have a small investment in this business. Today (30th January 2017) they published their interim results. Last Tuesday, 24th January 2017, they issued a trading statement. As a result, their share price which had a 52 week high of 570p has suffered a rather substantial decline. At the time of writing I could buy a share at 382p. Given that their board still expects "to announce a modest increase in dividend at the interim stage" 5p on 23 March if you are on the register by 10 February, it's quite an impressive return at least for the moment.
So what do we learn from them about the reasons for the admitted dip in profits. They say that revenue has increased (benefiting from the sustained depreciation in the value of sterling - otherwise it would have been broadly flat) but there is lower than anticipated revenue growth -that would be none then. This follows an acquisition and organic expansion so it does suggest that the attorneys are not working as hard as they did in the previous year or that they are charging less for their services.
Obviously they blame uncertainty, but is there evidence of the reasons for the underlying fall in demand? Murgitroyd can and does invest in business development and is probably better placed than most of us solo practitioners to try and grab a bigger share of the market. The chairman's statement says that they are taking measures to address the level of administrative expenses including the scale of investment in business development activities. Some of those business development activities will be denominated in dollar or euros so it's going to be a hard act to keep them down.
The chairman's statement doesn't make much of their unique position to retain EUIPO business. He does mention the Unified Patent Court, but purely in a factual way. We do not know whether he sees it as an opportunity or a threat. He is not prepared to big it up, so let's call it a threat shall we. All we get is that "the UPC will bring with it new challenges and opportunities" but the question is to whom.
Murgitroyd generate substantial revenue from North America (49%) so may be more vulnerable than you are to the tightening of the budgets of US mega filers.
Murgitroyd divide their revenues between their administrative work (34% of total revenue) and the attorney practice group. They mention their November 2016 introduction of a new online annuities platform. This is for clients and there isn't much price comparison information to indicate whether this service is competitive with some of the horrendously profitable other commercial offerings.
These statements are made to investors most of whom are not patent attorneys and have little understanding of the patent business because they only have an opportunity to invest in one of them. Nevertheless, do read between the lines.
All comments are greatly appreciated and of course this is not investment advice.