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Woolworths Limited + XERO FPO NZ – Are these good to bet on?

September 21, 2015 | Team Kalkine
Woolworths Limited + XERO FPO NZ – Are these good to bet on?

Woolworths Limited



Rating

The company has announced that as expected, Moody's Investor Services revised its long-term senior unsecured debt rating from A3 (Negative Outlook) to Baa1 (Stable Outlook). CFO David Marr said that the company remains committed to strong investment grade ratings and has been reviewing its balance sheet and capital structure including support for the most appropriate credit ratings which will take the business forward. He does not believe that the rating change will have a material impact and the company will continue to provide for adequate pricing and adequate capacity for future requirements.


Home Improvement (Source: Company Reports)
 

FY2015 Updates

The company has also released its annual report for FY 2015 and the financial highlights include dividends returned to shareholders of $ 1.8 billion, group sales down by 0.2% to $ 60.7 billion, fully franked dividends up by 1.5% to 139 cents per share, EPS before significant items up by 0.7% to 195.2 cents per share and net profit after tax before significant items up by 0.1% to $ 2.45 billion. Managing director and CEO Grant O'Brien pointed out that the company has market leading positions in all its key markets in Australia. In Food and Liquor, it is 30% larger than its closest competitor. The Liquor business is a global leader and it is growing its leadership in all formats and Countdown is the leading supermarket brand in New Zealand. Masters holds the number two position in the Home Improvement market and ALH is the largest hotel operator in Australia. It is also the largest domestic online retailer in the country. He went on to point out the challenges facing the company and what it was doing about it.
It was further highlighted that the company needs to regain its momentum in Australian supermarkets and this meant winning the customer experience. In the second half of 2015, more than $ 200 million was invested in lower pricing strategy resulting in the company offering some of the lowest prices. It needs to continue to outperform in the liquor business; and in FY 2015, it continued to grow and gain market share in all the three formats namely Dan Murphy's, BWS, and The Wine Quarter. It is making clear progress in the path to profitability for Masters by adding new ranges of products and there are now 11 stores operating in a new format. The reset of Big W is being accelerated and more than 80% of non-productive inventory has been cleared; the new Party category has been rolled out to 63 stores and the number of products available online is now more than 28,000. The lean retail model is also being accelerated to be more competitive in a tough environment with an emphasis on taking out costs in a low inflation environment and the company is currently ahead of its stated target of more than $ 500 million.


Dividend (Source: Company Reports)

We believe that the shares represent good value at the current prices and are worth investing in. Accordingly, we recommend a buy for the stock at the current price of $24.5.


WOW Daily Chart (Source: Thomson Reuters)
 

XERO FPO NZ



Headway in ANZ

The company has recently announced for achieving more than 400,000 paying subscribers across Australia and New Zealand for its small business cloud-based accounting software. It expects to achieve the significant milestone of 250,000 subscribers in Australia and has recently announced 150,000 subscribers in New Zealand. This demonstrates the continued momentum that the company has built up in these markets as small businesses continue to demonstrate their preference for Xero as the preferred cloud accounting platform over its rivals. The company has also announced that it has more than 540,000 subscribers on a global basis. Chris Ridd Managing Director Australia said that small businesses continue to see the benefits of working in the cloud because it allows them the ability to connect with their businesses anytime from anywhere.
 

Subscriber Base (Source: Company Reports)

The company has acknowledged that the platform had been strengthened with more than 1200 staff of whom more than 400 were added in FY 2015. In the past 12 months, transactions exceeding $ 300 million had been processed and the number of partners now exceeded 16,000. IDC has named Xero the fastest growing company in the payroll accounting space demonstrating 74.7% year-on-year growth in revenues in 2014. It has also recently named the company the fastest growing financial applications vendor with year-on-year growth of 80.3% in revenues in 2014.
 
The company has been delivering what was promised last year. In terms of product, it is delivering the best in class US product, innovating faster and changing the product category. In terms of people, it now has a complete US leadership team, global management is focused on the US and there are new US directors in place. In terms of partnerships, it has built the best ecosystem, is executing on existing relationships and has developed large distribution partners.


User base and Direct sales (Source: Company Reports)

Partnerships

The media reports that the New Zealand cloud computing company has signed a strategic partnership with US cloud storage giant Dropbox. This is the latest innovation and the partnership will expand its online presence and demonstrates the kind of approach that it saw being declared the world’s ‘Most Innovative Company’ by Forbes in 2014 and 2015. Dropbox allows users to store files online and subsequently access them from any computer with internet access and share them with other users. This is a logical expansion because it will allow users to import information –such as a folder of receipts and expenses – from Dropbox. Importantly, the partnership also allows expansion of customer base because of exposure to businesses that are already using Dropbox which is a major player. Combined with some other innovations announced earlier, Xero looks to be adding substantially to its product offering and looks to be expanding its moat. In addition to the partnership with Dropbox, it has also announced a partnership with Google, allowing users to create invoices and quotes from Gmail, an initiative with Apple to bring new solutions to the iOS platform for mobile devices like the iPhone, iPad, and Apple Watch, Xero Me for iOS, making it easier for employees to access information like pay slips etc. OzForex Group also recently announced a strategic platform partnership with Xero to make international payments easier for Xero customers.
 
Shares are trading close to their lowest point for the last 52 weeks, and, despite continued lack of profitability, we believe that there is an opportunity in the long run.


XRO Daily Chart (Source: Thomson Reuters)
 
Accordingly, we put a BUY recommendation for the stock at the current price of $12.7.

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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 currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
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Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.



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The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

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