Stocks’ Details

Xero Limited

Begins the Next Chapter in its Global Growth Strategy: Xero (ASX: XRO) has delivered another impressive full-year result driven by subscribers and revenue growth with excellent operating discipline, reflecting the strength of its value proposition and business model. The group is well poised to leverage its leading positions in the international market at the back of a diversified growth profile. As a result, the group is now focussed on delivering a scalable, world-class product and customer service experience into new and existing markets which will support the overall growth in years to come.

After 12 years of strategic investment into the business model, the group has deliveredits first positive annual EBITDA of $26.0 Mn compared to ($28.6) Mn loss in FY17 and has grown well in FY18 with the addition of 351,000 subscribers. Moreover, the group has recorded revenue growth at CAGR of 49 per cent over the three years. Resultantly, the group experienced improved operating and investment cashflow margins from (71%) to (9%). Despite the strategic investment to expand the business across all verticals, the group has succeeded in keeping net-debt-to-equity ratio below 1x.

We expect that the group will continue to focus on growing its global small business platform and expecting reduced cash outflow in FY19 from FY18 through its operationalefficiency. Moreover, the surplus cash will be reinvested to drive the long-term shareholder value, subject to the investment criteria.


Business Strategy (Source: Company Reports)

On the other hand, Xero disclosed to ASX that one of its director William Lewis Veghte (Bill Veghte) had a direct and indirect interest in the Company and acquired 4,333 shares via On-market Purchase at an issue price of 39.66 per share. Moreover, Lee Hatton who had a direct interest in the company acquired 1,999 ordinary shares at an issue price of 39.66 per share through remuneration for role as a director of Xero Limited. Meanwhile, the stock has moved up 69.66% in the last one year as at 29 May 2018, and currently trading close to 52-week high levels ($42.200). Hence, we maintain our “Hold” recommendation on the stock at the current price of $ 40.200 (up 2.3% on May 30, 2018).
 

TPG Telecom Limited

Upgraded EBITDA Guidance for FY18: TPG Telecom Limited (ASX: TPM) is in the news for all the good reasons including the much-talked about mobile plan that would be made available to the first TPG customers and will be absolutely free for the first 6 months. This is expected to be available in Q3-Q4 2018, and the plan is on Unlimited Data, with the first 1 GB of data every day supplied at 4G LTE speeds, after which speed will be capped at 1 Mbps for the remainder of the day. After the 6-month free period, clients will be charged $9.99 per month. Management intends to leverage this offer to attract new customers as this promotion is the first of its kind in Australia and indicates a new phase of competition in the mobile market. Meanwhile, TPM delivered a decent set of results for first half of the year wherein underlying revenue marginally grew by 1.4% to $1,252 Mn in 1HFY18 as compared to the prior corresponding period (pcp).The top-line growth was mainly supported by product mix growth during the same period. Underlying EBITDA slightly rose to $418.2 million as compared to $417.6 million as reported in the prior corresponding period. This small EBITDA increase was achieved despite the significant headwinds that were experienced in 1H18 from the migration of DSL customers to lower margin NBN services, loss of gross profit from home phone services as customers migrated to NBN bundled services and electricity price rose up. Underlying NPAT attributable to owners of the Company showed the growth of 4.9% to $ 217.7 Mn in 1HFY18 as compared to previous corresponding period.


1HFY18 Financial Highlights (Company Reports)

On the other hand,the group delivered a strong cash flow during the first half of the year with $417.2 Mn cash generated from operations (pre-tax). Total capital expenditure reached $791.8 million during the half year which included a $594.8m instalment for the 2x10MHz of 700MHz spectrum acquired at auction last year. Considering the first half performance the management upgraded the guidance for underlying EBITDA for the Group for the full year FY18 to now be in the range of $825-830 Mn. We expect the group will continue to generate a good return on capital expenditure by building a new revenue stream in years to come. Hence, we maintain our “Buy” recommendation on the stock at the current market price of $ 5.460.

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