Xero Defies Gravity | Spark, James Hardie

8 November 2019

​Global markets were ​higher overnight with US markets rallying to new records as signs of progress in US-China trade relations and a batch of largely upbeat earnings boosted risk appetite.
US treasury interest rates also continue to move higher, which is seeing money flow out of bond-like stocks such as utilities and property trusts this month. Technology and financial stocks led gains overnight.​​
It was a busy day yesterday for stocks under our coverage​ yesterday​, with announcements from Xero, Spark, and James Hardie.

Stock in Focus: Xero (XRO:ASX)

​​Xero shares surged​ nearly +10%​ to new all-time highs of nearly $74 yesterday, after releasing another exceptional result​. Xero has been our best performing stock pick, since we initiated a BUY recommendation in 2015 at $13 a share (for a gain of over 450%).

​T​he cloud accounting software firm swung to a $1.34 million first-half profit on a near one-third rise in revenue​, with 30​% lift in subscriber numbers compared to the same period last year.

A continuation of strong sub​scriber ​momentum in the UK and Australia supported ​the result, with customer metrics also improving, including ​subscription increases which help underpin future period cash flows. Gross margin expansion (+2​4%) and lower churn are driving ​profitability. Interestingly, the more mature NZ market experienced +22% revenue growth on just 13% subscription growth, showcasing that the platform/upsell strategy can drive revenue growth in a more mature market, validating the embedded value in the existing customer base. ​

We currently have a BUY (High-Risk) rating on Xero.
Members should look out for a full report on Xero to be released in our weekly report.


Australia & New Zealand Market Movers

​The Australian market rallied yesterday (+1.00%) after a day of significant announcements that saw the banks and some tech companies post gains that gave the local market a notable boost. National Australia Bank surprised the market by announcing its full-year results without a capital raise, as the bank released a full-year net profit of $4.8 billion, down 13.6% on 2018 and slightly below already low market expectations.
James Hardie was also a strong performer during the session (up 8%) following release of its half-year results. The building products manufacturer reported a net profit after tax of $US189.6 million ($276 million), up 18%  on the previous first half. The result saw the company raise its full-year profit guidance to between $US340 million and $US370 million ($495 million and $539 million) for the year ended March 31, 2020.
Flight Centre lost ground on after the company released its half-year results and gave an outlook update that fell below expectations.
Zip Co surg​ed after announcing it had signed an agreement with Amazon. The deal will see Zip's point-of-sale credit payment option offered to customers shopping on Amazon’s Aussie website.
The New Zealand market was in positive territory on Thursday (+0.33%) as Pushpay extended its gains after reporting strong results, and A2 Milk bounced back from early losses. Spark shares were also higher, after the telco reaffirmed its profit guidance. Trustpower shares fell after reporting first-half net profit fell to $38.7 million from $64.9 million in the same six months last year after low hydro inflows and repair costs to a power station.


3 Things Markets Will be Watching this Week

  1. ​US earnings season for the 3rd quarter ​continues this week.
  2. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
  3. A string of China data points are set to be released at the start of the week.


Have a Great Day,


It was a busy day yesterday for stocks under our coverage​ yesterday​, with announcements from Xero, Spark, and James Hardie.

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