Xero Limited


XRO Details

Strong Subscription Expansion: Xero Ltd (ASX: XRO) has posted ACMR of $258 million for FY16, which is more than the estimated guidance of >$200 million. Moreover, Xero’s paying subscribers base increased to 717,000 in FY 16 from 475,000 compared to FY 15. The company has strong global growth with the UK growing to 133,000 subscribers, Australia rising by 312,000 subscribers, New Zealand growing to 186,000 subscribers and North America to 62,000 subscribers. In FY 16 XRO’s gross margin improved 6 points to 9% while EBITDA margin improved 17 points to 37%. The group estimates that its operating metrics would continue improve in FY17 through automation and economies of scale while cash usage in FY17 (based on FX rates at April 01, 2016) is estimated to reduce from FY16. The company is managing to break-even its cash flow within its current cash balance.
 

Growing subscriber’s growth (Source: Company reports)
 
Meanwhile, Xero has also signed the deal with US bank Wells Fargo to integrate financial transaction feeds for their clients. To expand in Asia XRO has opened its first Asia region office in Singapore to cater to customers of Hong Kong, Malaysia and Singapore. The company has strengthened its international management team and accordingly witnessed a global revenue growth of 95% in international markets and 57% in Australia and New Zealand in FY 16 as compared to previous year. Consequently, Xero stock rallied over 12.49% in the last one month (as of June 16, 2016) and we believe the stock would continue to rally in the coming months. Accordingly, we maintain our “Buy” recommendation on the stock at the current price of  $18.15
 

XRO Daily Chart (Source: Thomson Reuters)
 
Freelancer Limited


FLN Details

Acquisition of Escrow.com: Freelancer Ltd (ASX: FLN) delivered 60% increase in cash receipts to $12.8 million in the first quarter 2016 as compared to the first quarter of 2015 after the acquisition of Escrow.com in November 2015 which grew 18% during the same period. Escrow.com brought new mobile technology which is responsive and multilingual at front end, and even added new payment methods for international users, along with chat technical support with an average response time of 20 seconds for support queries. FLN also issued 29,166 shares to the employees under its Employee Share Plan and has recently announced for quotation of 54,166 ordinary (ESP) shares. The shares of FLN generated returns of 21.77% in the last three months (as of June 16, 2016) and still we maintain our “Buy” recommendation on the stock at the current price of $1.555
 

FLN Daily Chart (Source: Thomson Reuters)
 
Integrated Research Ltd


IRI Details

Solid recurring business: Integrated Research Limited (ASX: IRI) posted a revenue growth of 18% to $39.4 million for the six-months period to December 31, 2015 and a net profit of $6.2 million. The company has posted maintenance revenue increase by 21% to $13.7 million while consulting fees revenue grew by 41% to $3.5 million.
 

Penetration across the world (Source: Company reports)
 
IRI has come up with Prognosis version 10.5 in December 2015 while Version 11 is scheduled for release in mid?2016 with additional Cloud management capabilities for Unified Communications and Payments as well as extensions of the Contact Centre and Call Recording Assurance solution. The group has a solid recurring revenues and estimates a new recurring stream from Heartbeat testing.  IRI stock has generated a returns of 10.65% in the last three months (as of June 16, 2016) and has a decent dividend yield. We give a “Speculative Buy” recommendation on the stock at the current price of $2.18
 

IRI Daily Chart (Source: Thomson Reuters)
 
Isentia Group Ltd


ISD Details

Strategic Acquisitions: Isentia Group Ltd (ASX: ISD) has undertaken strategic acquisitions to enter new Asian markets. For this ISD had completed its acquisition of Social Net Creator Ltd in South Korea, a bolt?on acquisition in Thailand and is finalizing two further acquisitions in Vietnam and Hong Kong. The four acquisitions are expected to contribute a 15% increase to the company’s full year Asian revenue. Accordingly, ISD estimates FY16 revenue to be in a range of $155 million to $158 million (up 22% to 24% as compared to FY15) and FY16 EBITDA is estimated to be in a range of $50 million to $53 million (up 18% to 25% compared to FY15).
 

ISD’s presence in Asia Pacific (Source: Company Reports)
 
ISD has an agreement with rights manager, the Copyright Agency to deliver a greater value to Isentia clients by keeping them informed in the 24/7, digital business. On the other hand, ISD is already trading at an unreasonable P/E. We give an “Expensive” recommendation on this stock at the current price of $3.68, and would review the stock at a later date.
 

ISD Daily Chart (Source: Thomson Reuters)
 
Smartgroup Corporation Ltd


SIQ Details

Building contracts base: Smartgroup Corporation Ltd (ASX: SIQ), dealing in software, distribution and group services and fleet management services along with a bucket of salary packaging services, has signed a contract with Queensland government for three years starting from April 01, 2016 with an extension option of two years. SIQ even renewed the contract with Department of Defense to continue receiving salary packaging services till June 30, 2021. On the other side, SIQ has acquired the selected assets of Trinity management group for the initial payment of $1.7 million and further payment would be made in 36 months. The acquisition would be funded from cash and existing facilities. The group has finished three acquisition in 2015 and accordingly the stock SIQ has risen 211.7% (as of June 16, 2016) in the last one year. SIQ is a member of National Automotive Leasing and Salary Packaging Association that has received letter from Leader of opposition setting out the position of Labor party while highlighting that labor would retain the current arrangement with regard to salary packaging and fringe benefit tax measures. Given solid revenue prospects, we give a “Hold” recommendation on the stock at the current price of $5.65
 

SIQ Daily Chart (Source: Thomson Reuters)

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