Xero Ltd

More momentum in place: XERO Ltd (ASX: XRO) in the first half of FY18 has posted improvement in the net loss after tax to $21.1 million from $43.9 million over H1 FY17. XRO has reported the positive EBITDA of $5.4 million, compared to an EBITDA loss of $25.9 million in H1 FY17. The company has achieved positive EBITDA for the first time. Further, the company has posted positive cash flows from operating activities at $6.1 million for the half-year from an outflow of $(13.4) million in the same period last year. XRO had $84.4 million cash and short-term deposits, at 30^th September 2017. Moreover, the operating revenue grew 37% over H1 FY17 (38% in constant currency) to $187.8 million. ACMR grew 34% (38% in constant currency) by adding $113.7 million in the 12 months to 30^th September 2017, to $416.9 million. There is a 15% growth in the Lifetime value per subscriber (LTV) (12% in constant currency) to $2,306 by adding more than $1 billion in total subscriber LTV in one year. The subscription revenue grew 38% to $183.0 million on H1 FY17 (constant currency growth of 39%). There is a growth in the net subscriber additions, by adding 337,000 in the past 12 months to finish on 1,199,000 subscribers at 30 September 2017. Furthermore, XRO has extended cloud accounting market leadership in the established markets of Australia and New Zealand with more than 518,000 subscribers in Australia and more than 271,000 in New Zealand. Additionally, XRO indicated for consolidating the company’s listing on the Australian Securities Exchange (ASX).  For this, XRO will cease to trade on the New Zealand Stock Exchange (NZX) at the close of business on 31 January 2018, and that XRO will delist from the NZX with effect from the close of business on 2^nd February 2018. Meanwhile, XRO stock has risen 7.01% in three months as on December 20, 2017 and was up 3% on December 21, 2017. Given more potential that is yet to be witnessed, we put a “Hold” recommendation on the stock at the current price of $29.12
 

1H 18 Financial Performance (Source: Company Reports)
 

Class Ltd

Improved market share of SMSFs: Class Ltd (ASX: CL1) in the September quarter has posted 28% growth in the revenue due to a strong growth in the accounts administered on Class. As a result, CL1 has reported 39% increase in EBITDA and a 37% growth in the net profit after tax. The company’s EBITDA margin expanded from 45% to 48% due to the scalability of the business model. Moreover, CL1 had passed the 150,000 accounts’ milestone last quarter, which was an increase of 56% since the IPO in December 2015. The company has increased its market share of SMSFs from 19% to 24%. The market share at the end of the September quarter has increased again to 25%. CL1’s high retention rates and new account growth have contributed to the market share growth. CL1 is investing in Class Portfolio with additional staff and resources allocated to its development. The Class Portfolio accounts have grown by 12% last quarter, with 28% of Class Super customers now also using Class Portfolio. 70% of Class Super users have said that they would consider using Portfolio. However, CL1 was impacted in the June and September quarters, as the firms delayed the loading of funds or deferred their move to the cloud and then in September the company saw a return to historical rates of conversion. Additionally, in FY 18, CL1 will invest in Class Super to maintain market leadership and to further increase SMSF market share, despite a challenging environment. The company in FY 18 is expected to deliver Class Portfolio to address the $3t in assets that investors hold outside super, and improve the engagement with financial planners, particularly, those working closely with accounting firms. Further, CL1 has planned to expand and better leverage the partner ecosystem, to increase revenue share from partner products, enhance customer value, and provide the broadest wealth accounting platform possible. On the other hand, CL1 stock has fallen 19.02% in three months as on December 20, 2017. Looking at the entire picture, we give a “Hold” recommendation on the stock at the current price of $2.70

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