Invast Blog

Xero to Hero? Looking Impressive.

One of the things I have been writing about in recent weeks is the problems with Australia’s terms of trade and the fallout on commodity stocks like BHP. If you read my blog posts, you will by now have figured out that I think traders and investors should stay completely away from BHP because it’s just too expensive at the current price. One of the things I do like though is the quiet achievers in Australia – businesses that are shooting the lights out overseas and making us proud.

As I was writing this week’s Invast Insights report, I noticed a few great examples like Amcor and Brambles. Their share price has performed and delivered very impressive returns, flying under the radar. One business which I continue to believe in very strongly is Xero – listed on the Australian and New Zealand market. Like all trans-Tasman success stories, we will claim it as an Aussie business! We claimed Russell Crowe as our own after all.

Xero is changing the way small businesses interact and transact. I think one of the major themes over the next decade will be the transformation of payments and the ways businesses collect and pay their transactions. The big four Australian banks are already well into the technology investment cycles to capture this market. But the backbone of the Australian economy is small business. The more small business owners I talk to, the more I hear them switching over to Xero. It just makes life so much easier and accountants love streamlining their businesses. After all, it is very expensive to hire staff in Australia and the more technology an accounting firm can incorporate into its business, the higher chance it has in succeeding.

Xero is a perfect example of the new age technology. Customers are not just in Australia, but global. Traction is very strong and these types of products are extremely sticky, which means once consumers join up and start transacting, they are very reluctant to change. Businesses like Xero have been viewed with caution from some investors because they trade on a high price to earnings ratio and don’t generate enough earnings. But what’s the point in generating earnings, paying out dividends only to see your business slide in the short-medium term. The iron ore producers are a perfect example. Maybe they should have purchased technology companies at the top of the commodities cycle rather than paying out cash dividends. Anyways, that is hindsight.

Check out XRO through the Invast DMA trading platform. The business now has 200,000 paying Australian customers and I think this is the tipping point. Keep in mind that these customers could be organisations with multiple employees, owners and suppliers. Transactions are all processed through Xero and accountants log into the back end. This network is very difficult to replicate. A moat is developing here.

The blog posts I publish on a weekly basis, like this one, are only a small part of Invast’s complete research offering. There is a lot more detail in Invast Insights reports, which I spend a lot of time on and publish every single week. In April we will be going through the top 80 stocks listed on the Australian market. If you don’t receive Invast Insights, you can subscribe to a trial here at www.invast.com.au/insights. We’ll recap this all in our end of month webinar.

These are our initial impressions only, please make sure you always read all disclaimers on this website and individual reports very carefully. If you have any questions, please contact Invast staff at 1800-468-278 (or +61 2 8036-7555 international).

Happy trading!

Peter Esho
Editor – Invast Insights
@PeterEsho

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