Xero Limited

XRO Details

Growth in financial performance, modest impact of COVID-19 on results in March 2020: Xero Limited (ASX: XRO) is a New Zealand based provider of cloud-based accounting software platform to small and medium sized enterprises with global footprint in the US, Canada, Australia, and other key locations. As on 14^th October 2020, the market capitalization of the company stood at ~$16.70 billion. For FY20, the Group reported 30% growth in Operating revenue up at NZ$718.2 million in FY20 from NZ$552.8 million in FY19. This was due to increase in subscription revenue and other operating revenue. The company reported net profit after tax at NZ$3.3 million, reflecting an increase by NZ$30.5 million as compared to net loss of NZ$27.1 million last year. Its free cash flows increased by 320% from NZ$6.4 million in FY19 to NZ$27.1 million in FY20, equivalent to 3.8% of total operating revenue. In the same time span, the company retained a cash balance of NZ$536.1 million and a total debt of NZ$497.2 million

FY20 Financial Performance (Source: Company Reports)

Waddle Acquisition Completed: As on 1 Oct 2020, Xero has announced that it has completed the acquisition of Waddle, a cloud-based lending portal. This acquisition will help the company to grow its platform and will help the company to address its business needs. It will also position XRO to partner with global lenders.

Outlook: The company expects the uncertain operating environment will persist; however, it will exercise disciplined cost control and plan allocation of capital. It is targeting high-growth business.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock of XRO gave a return of 48.19% in the past six months and a return of 28.51% in the past three months. The stock is trading close to its 52-weeks’ high level of $119.880 and thus retains limited potential for further growth. On a technical front, the stock of XRO has a support level of ~$110.32 and a resistance level of ~$118.92. We have valued the stock using the EV/Sales multiple based illustrative relative valuation and have arrived at a downside of lower single-digit (in percentage terms). For the said purposes, we have considered Appen Ltd (ASX: APX), WiseTech Global Ltd (ASX: WTC), etc. as peers. Considering the current trading levels, volatile returns in the past six months, and the softer market spectrum, we suggest our investors to wait for a better entry level and recommend an ‘Expensive’ rating on the stock at the current market price of $117.86, up by 0.803% on 14^th October 2020. 

XRO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.