Daily Market Insights
Global markets were mixed overnight as the US market sold off but did manage to pare losses over the day. US stocks fell as worse than expected sales at Macy’s and Kohl’s sparked a sell-off across department stores, and Snapchat shares plunged as it reported a slowdown in user growth and revenue.
As we discussed yesterday, the RBNZ held interest rates at a record low and kept its forecast rate track unchanged which was unexpected by the market. This saw demand for high dividend yield stocks as well as sparking a fall in the NZ dollar. The fall in the NZ dollar is welcome relief for us, given one of ’s key investment thematic is for a weaker NZ dollar & Australian dollar. Among companies which benefit from a weaker NZ dollar are offshore earners, such as Fisher & Paykel Healthcare and Xero – which we discuss below.
Shares in accounting software company Xero (XRO.NZ / XRO.AX) jumped +5% as it reported its full year financial results which saw the business move closer towards becoming profitable.
Stock in Focus: Xero (XRO.NZ / XRO.AX)
Xero led the NZ market higher yesterday, rising 5.3% after it reported a net loss of $69.1 million for the 2017 financial year, narrower than the $82.5 million reported in the prior period. Chief executive Rod Drury didn't specify when the company might report a maiden profit but did note the company was EBITDA (a measure of operating earnings)-positive in the second half of the year, excluding share-based payments, and operating cash flow also moved into positive territory. "You can see where we are making progress on all those things," he said.
Highlights of the result included strong global growth with Annualised Committed Monthly Revenue (ACMR) growing to $359.7 million. Operating revenue was $295.4 million, an increase of 43% over the 2016 financial year (constant currency growth of 51%). Subscription revenue of $290.0 million, was an increase of 44% over 2016 (constant currency growth of 52%). Net subscriber additions increased to 318,000 to finish on 1,035,000 subscribers at 31 March 2017.
While the result was encouraging, as we have discussed in the past Xero remains a high-risk proposition, with success hinging largely on the effectiveness of its expansion into the key US market. In saying that, XRO continue to show solid growth in customer numbers and appear to have set up the infrastructure and framework needed to leverage future business off, in our view.
Members should look out for our full update on Xero to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was more or less flat yesterday (ASX 200 index +0.05%) as the market reversed early gains as iron ore futures fell weighing on the mining sector. Shares in retailer Myer sold off as it reported weak 3rd quarter sales, a trend across the retail sector given the tough trading backdrop and adverse weather conditions over the period.
The New Zealand market made gains on Wednesday (NZX 50 index +0.88%) after the RBNZ held interest rates at a record low and kept its forecast rate track unchanged (which was unexpected by the market), stoking demand for dividend-paying stocks including property firms and power companies. Xero led the market higher following a strong result discussed above, while A2 Milk also had another strong day.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of New Zealand makes an interest rate decision on Thursday.
2. Profit announcements continue in Australia with more of the Australian banks set to announce this week.
3. The Australian Budget is announced on Tuesday.
Have a Great Day,
Team