Xero Limited (ASX: XRO)

Slew of Positives: Xero Limited (ASX: XRO) has had a good run on the bourses, generating YTD return of 71.96%. Upbeat financial performance has been one of the major growth catalysts as the company reported its first positive EBITDA of $26.0 mn in FY18 compared to ($28.6) mn loss in FY17. Xero witnessed subscriber base growth, adding 351,000 new subscribers totaling to 1,386 mn at 31^st March 2018. The company’s kickstart to its new office in new Denver is in line with its focus on expanding the Americas business. The new office space can accommodate 300 employees, helping the company to realize growth and expansion in North America.

Xero has seen subscriber growth from all the regions with Australia and New Zealand topping the chart, adding 884,000 in subscriber base. The United Kingdom has also witnessed 47% increase in subscriber to 312,000. Expansion in North America has been encouraging as the company added 40,000 subscribers, up 43%.

Is Stock Worth Holding: After hitting 52 weeks high of $52.57, the stock has cooled off a bit but holding on to its support level of $48.710. Recent slump in the price seems to be a profit booking event by the investors. The overall positive momentum in the price remains intact with relative strength indicator comfortably placed below the overbought zone. Company’s aggressive growth policy and new subscriber addition has hit the right note with the investors. Investors would expect the company to continue with its product innovation and user growth strategy for the months to come. Sighting the positive developments, we believe that XRO stock would continue to grow. We recommend a ‘Hold’ on Xero at the current market price of $45.97, while the latest drop of 5.7% on September 06, 2018 comes at the back of technology sector slowdown across NASDAQ and eventually across the globe.
 

Altium Limited (ASX: ALU)

Growth in different zones: Altium Limited (ASX: ALU) has posted US$140.2 mn in revenue, an increase of 26% as all the regions performed well. Profit after tax for the company also came in 34% higher at US$37.48 mn compared to US$28.07 mn. The Board has announced unfranked dividend for the full year AU 14 cents per share, a 17% increase over the full year dividend for the previous year.
Revenue breakdown of the company shows that growth has prevailed in every region with China being the top contributor.



With good numbers posted in FY18, Altium is on the right track to achieve its 2020 revenue target of US$200 mn, backed by strong margin expansion. To continue on the growth track, the company has introduced next generation Atlassian – style transactional selling to increase the capacity and bring down cost of sales. In the long run, the company is determined to achieve US$200 mn revenue and EBITDA margin of 35% or better in 2020. Further, Altium aims at achieving 100,000 Altium designer subscribers before 2025.

Stock Performance: The stock has witnessed an impressive run up, generating YTD return of 107.5%. Good results were reflected in the stock as the price gapped up a day after the result presentation. After achieving 53 weeks high of $30.51, minor profit booking has been witnessed in the stock. However, the overall positive momentum of the price remains intact. We believe that the high profile customer portfolio of the company including Audi, Google, Siemens, Qualcomm among others coupled with growing market share by revenue would act as a support. However, the stock is a bit ‘Expensive’ at the current level of $ 25.600.
 

Afterpay Touch Group Ltd (ASX: APT)

Expansion cost cuts profit: Afterpay Touch Group posted higher revenue for FY18 at A$142,345, an increase of 390% over FY17 revenue. However, finance and operating expense for the company surged drastically. Growth in finance expense was the outcome of interest expense, cost associated with extending fund facility and financing facility expenditure. Operating expense on the other hand increased due to increase in employee cost, cost incurred during global expansion and growth back home. During the year, non-current liabilities also increased for the company primarily due to draw downs under NAB facility and issue of senior unsecured debt of $50 mn. Recently, APT raised $117 mn through institutional placement plan at $17.05 per share. The company raised $117 million to fund its international expansion strategy.


Financial Snapshot (Source: Company Reports)

Stock Performance: Share price has taken a beating from the high of $23 post the news that the company will come up with right issue. Since then the stock has fallen continuously making lower highs and lowers lows. With technology stocks taking a hit globally, APT stock dropped below the support level of $16.72 signaling further weakness. Going forward, the company is expected to be reeling under the increasing finance and operating expenses as it goes ahead with the expansion plan. We maintain a “Sell” recommendation on the stock at the current price of $16.00.

 
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