Xero enjoys spell as New Zealand's most valuable firm

Thursday, 12 November 2020

Covid-19 forced Xero to curtail its lavish Xerocon conferences, which typically attract accountants by the thousands.

New Zealand cloud accounting firm Xero overtook Fisher & Paykel Healthcare to become the country’s most valuable company, for the first time, for about an hour on Thursday.

However, the companies traded places again in afternoon trading as the gloss wore off Xero’s half-year result and Fisher & Paykel came back into favour with investors.

Xero’s share price rose as high as A$130.95 (NZ$138.17) during early trading on the Australian stock exchange, giving the Wellington-based firm a record market value of A$18.7b (NZ$19.7b).

But its valuation dropped back to A$17.4b ($18.3b) after its early gains evaporated in afternoon trading.

Company founder Rod Drury’s stake in Xero nearly touched $1.9 billion.

* Xero shares leap 9.2pc as customer numbers top 2 million

* Xero shares finally overhaul peak reached in 2014

Fisher & Paykel Healthcare’s market value meanwhile dipped just below $19b on the NZX on hopes of an effective coronavirus vaccine.

But it regained its mantle as its shares moved back into positive territory and its value climbed back up to $19.1b.

Xero’s day-high meant anyone who invested $7283 in the company’s 2007 initial public offering would have become a millionaire if they timed their exit perfectly.

Xero posted an A$34 million half-year profit but lower sales growth, as Covid-related restrictions curtailed its usual marketing splurges.

Its interim profit, for the six months ended on September 30, was up from profits of less than A$2m during each of the preceding six-month periods.

Half-year operating revenues, at A$410m, were 21 per cent up on the same period last year and 8 per cent up on the six months ended on March 31.

Sales growth has been decelerating as the business grows, but the inability of the company to host its usual lavish Xerocon events because of the Covid restrictions appears to have also had an impact in some markets.

The company gave that as a partial explanation for achieving only 4 per cent year-on-year revenue growth in North America.

However, that had the flip side of contributing to a drop in sales and marketing expenses of 10 per cent, which assisted with its higher profit.

Xero said it prioritised investing for the long term during the half-year, spending a record of almost A$140m on product development, up 29 per cent on the same period last year.

Chief executive Steve Vamos said customer sign-ups were strong in Australia and New Zealand, partly because there had been less disruption there from Covid.

Xero ended the half-year with 2,453,000 subscribers – about 7 per cent more than it had at the end of March and 21 per cent up over the year.

Fisher Funds portfolio manager Sam Dickie said Xero’s revenues were “bang in line with expectations”, but its net profit was double forecasts because of slower cost growth.

Fisher Funds holds a 1 per cent stake in Xero.

“The critical point to us is they continued to invest heavily in their product,” Dickie said.

“We love it when companies cut fat, rather than muscle and bone.”

Xero founder Rod Drury continues to own a 9.61 per cent stake in Xero, worth just under $1.9b at Xero’s day-high.