Rod will be beside himself - MYOB have gone beyond the cloud - all the way into space
https://www.youtube.com/watch?v=F_AnUsVC-IY
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Rod will be beside himself - MYOB have gone beyond the cloud - all the way into space
https://www.youtube.com/watch?v=F_AnUsVC-IY
Xero led the index lower today. Market isn’t attracting buyers and sellers in this slow market.
http://www.scoop.co.nz/stories/BU161...xpert-says.htm
Xero share trade didn't breach the law expert says
Feels like the Xero SP has been pummelled in the past couple of weeks, down close to 10%. Amazing that I consider 10% to be a large drop now, after years of high volatility.
Any thoughts?
I did have two thoughts about the current SP drop.
Is it related to Brexit, with the £ now 20% lower than it was in June. UK sales make up 18% of Xero sales and that market is growing fast for them. Uncertainty there will hit Xero.
Alternatively is it anxiety about the H1 17 figures due out on 3 November. Will their steep growth curve keep going or it is time for it to level out.
Or am I just looking for explanations from something that can't be explained?
Morningstar often got these wrong re price guidance but this make an interesting reading. May be Rod was right re they are about two to three years away from they they want to be...
Latest recommendation report
Valuation: $21.00Appropriately priced, neither buy nor sell Last updated:18/10/16
Xero Offers Value Ahead of Interim Result
Investment rating
Xero has grown quickly since incorporation in 2006 to become the largest provider of accounting software as a service, or SaaS, to the small and medium enterprise, or SME, market in Australia and New Zealand. We expect the company to continue to leverage this strong position to expand quickly in other regions such as the United Kingdom and the United States. Current losses are an acceptable price to pay for rapid growth and associated strategic benefits and we forecast a maiden profit in fiscal 2020. The capital-light business model should enable returns on invested capital, or ROICs, to comfortably exceed the weighted average cost of capital, or WACC, from fiscal 2020, supporting our narrow economic moat rating.
Event
Impact
Recommendation impact (last updated: 18/10/2016)
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Event analysis
Xero Offers Value Ahead of Interim Result
We view Xero as undervalued, currently trading around NZD 17.50 and a 17% discount to our unchanged NZD 21.00 fair value estimate. We expect the price/fair value discount to narrow as the company announces financial results on 3 November and approaches profitability. We forecast a maiden underlying profit after tax of NZD 63 million in fiscal 2020. The firm's narrow economic moat rating is based on the reluctance of accounting software users to change provider, also known as switching costs.
We expect strong customer and revenue growth to continue in the first half of fiscal 2017. For the full year, we expect year-end customer numbers to increase by 38% to 992,000 and revenue, which is based on average subscribers over the year, to grow by 51% to NZD 314 million. We forecast an aftertax loss of NZD 73 million and free cash outflow, comprising operating less investing cash flow, of NZD 76 million with NZD 108 million in cash and no debt at 31 March 2017. Our forecasts imply the company won't need additional capital to reach profitability which is in line with management guidance.
As a loss-making company, the P/E ratio is not relevant for Xero, but the price/sales ratio of 7.0 compares with 7.3 for MYOB, 5.5 for Intuit, and 5.3 for Sage. However, Xero's fiscal 2017 forecast sales growth of 51% is far higher than Sage at 6% and Intuit and MYOB at 8%, implying Xero should trade on a higher multiple. At our fair value, Xero's price/sales ratio is 8.6.
HY result out on 3 Nov. Customer numbers will be of particular interest to me. I reckon 850k, on track for 1m by FY end.
But I'm not too confident about where the growth is coming from. I'm worried about it being from UK, Aus and international, with not much from NZ or US.
I wonder what the market will be expecting, I'm guessing they're hoping for good US growth. What happens to the share price if that US growth is poor? I think international might have good growth, but not optimistic that the market will views that as an alternative to US growth. Although, perhaps they can argue international has greater scope than US.
It is overvalued and has short term bearish outlook. However, growth punters could create some demand. It should have range bound from NZ $ 15 to 21 in the short run. It will go above $20, if they bring some good news (good performance) to the market. It should treat as long term play provided they have long term business.