Xero Ltd.

Robust growth in ARPU - A key catalyst: Xero Limited (ASX: XRO), has via an ASX release posted its numbers for the 1H 2019 where its top line has expanded by 37% on a YoY basis. This expansion was on account of subscriber’s growth at global level and specially in the Australia & New Zealand segment. Also, the ARPU has increased by 6% on a YoY basis and came in at $31.09 which contributed to the cause. EBITDA saw a growth of 7% on a YoY basis and came in at $16.80 Mn for the 1H 2019. This was on the back of stable ARPU’s for the period as compared to pcp. These earnings improvement was also driven by operating efficiencies achieved in the processes.

ARPU which is a key metric in this industry to evaluate the operational performance was reported at $32 for the ANZ and $29.70 for the international markets respectively. The ARPU has increased by over 7% for the ANZ markets driven by better product mix, however the same has fallen by 5% in international markets due to forex fluctuations.


XRO operating revenue growth (Source: Company report)

Meanwhile, the stock price has fallen by 16.52% over the past six months as on 11 December 2018. The return on equity has improved to -12% in 2018 from -27% in 2017. Hence, considering the robust subscriber growth and rising ARPU’s, we maintain our “Hold” recommendation on the stock at the current market price of $39.30, up 4.6% as on 12 December 2018.
 

Altium Ltd.

Robust demand for smart connected devices- a growth driver: Altium Limited (ASX: ALU), during the financial year 2018 achieved a top line expansion of 26% on a YoY basis and hence the revenue came in at US$140 Mn. This growth was driven by a growth of 15% in the ‘Altium Designer’ new seat sales and a growth of 10% in the customer subscription pool. This growth was in line with the growth targets set by the management to achieve a revenue target of $200 Mn till the year 2020. EBITDA margins were 32% for the year. This was on the back of improved the performance of the Altium Designer transactional sales engine. Going further the growth driver for the company to achieve the desired revenue till the year 2020 would be the growth in the electronics with the rise in demand of the smart connected devices. Moreover, targeting the new customers which are entrants into the electronic design segment by acquiring majority of seats will also be a part of the strategy. Also, the opportunities to engage into various strategic combinations will prove to be a catalyst in the achievement of company’s vision.


ALU’s revenue and EBITDA growth trends (Source: Company report)

Meanwhile, the stock price has fallen by 10.13% over the past six months as on 11 December 2018. Hence, considering the expected robust demand in the smart connected devices segment and revenue growth in line with expectations we advise for a wait and watch strategy on the stock at the current market price of $21.82 as on 12 December 18, while the price to earnings ratio is still high at 52.9x.
 

Nearmap Limited

Growing geospatial mapping market: Nearmap Limited (ASX: NEA) reported its FY 2018 numbers whereby, the operating revenue for the FY 2018 came in at $ 54.1Mn a rise of 32% over pcp. This was on the back of continued customer retention & continued traction seen in its customer base. Also, the above growth was driven by the ACV (Annualised contract revenue) portfolio of the Australian operations. The Australian ACV grew by 22% to reach $48.8Mn and simultaneously the US portfolio grew by a stellar 142% to reach at US$12.9 Mn.

The consolidated net loss after tax was clocked at $11 Mn. This was on account of the incremental capture cost that the company had to incur due to the rollout of “HyperCamera2” systems. This has led to an incremental cost of 28% on pcp. Moreover, the technology & general operations and Depreciation & amortisation expenses escalated by 57% and 113% respectively over the previous fiscal.
 

 
NEA ‘s key financial highlights (Source: Company Reports)

Going further the company is poised for the long-term growth as the global market for the Geospatial mapping is expected to grow at a healthy rate and hence reach $4.5 Bn by the end of 2025. Also, the firm has got adequate cash resources which it can use to achieve strategic M&A objectives. During FY 2019, the company will continue to be the leader in the 3D contents with tools available in the Map Browser. Also, the 3D experience will be enhanced with the usage of “Hyper Camera”. Moreover, the company’s strong execution track record will aid in gaining new market share in terms of product & geographies.

Meanwhile, the stock price has risen by 38.97% over the past six months as on 11 December 2018. Hence, considering the growth trends in the geospatial mapping market & strong revenue growth while net margin and return on equity have dropped further, we reiterate our “Hold” recommendation on the stock at the current market price of $1.510 as on 12 December 2018.
 

Redbubble Limited

Acquisition of TeePublic driving top line:Redbubble Limited(ASX: RBL) announced the trading performance for Redbubble and TeePublic over the Thanksgiving weekend, the company’s revenue for the five days for thanksgiving weekend came in at $12.50 Mn, up by 23.40% on the pcp. While investors were expecting a better result, the growth still looked decent.
 
For the Q1 2019, Redbubble marketplace has been experiencing a lag in the search traffic as a result of the Google algorithm change in September 2018. The gross transaction value for the first quarter came in at $64.10 which is a growth of 40.50% on pcp. This revenue growth was achieved on the back of trading over the back-to-school period in the norther hemisphere, which typically drives strong sales across wall art, homewares and stickers. Stickers remained to be a performer, graded over 71% and contributing a substantial 18.9% of product revenue, while the t-shirts segment continued to perform well with growth of 33.6% for the quarter.
 

RBL’s Revenue & Gross profit growth (Source: Company Reports)

Going further the company expects the growth trajectory to be recovered due to the remedial measures taken. However, because of the uncertainty in the timing of the sustained organic search sales growth the company may face a downside risk to its revenue and operating EBITDA guidance.

Meanwhile, the stock price has fallen by 34.13% over the past six months as on 11 December 2018. Group’s EBITDA margin has improved while the return on equity has been on a lower side in 2018. Hence, considering the substantial revenues contributed by the TeePublic & revenue growth in its t-shirts and sticker segments, we reiterate our “Speculative Buy” recommendation on the stock at the current market price of $1.010 as on 12 December 2018.


Stock price Comparative Chart (Source: Thomson Reuters)
 

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