Cloud accounting technology company Xero just announced two things: a very positive half-year financial result, and that it is exiting the New Zealand stock exchange. Rebecca Stevenson considers what this means for our investment landscape.
New Zealand cloud accounting firm Xero announced its half-year result today and it was a ripper for the company – and yet a fizzer for the New Zealand investing community.
The company booked positive EBITDA (earnings before interest, taxes, depreciation and amortisation) of $5.4 million. This is the first time it has entered such territory since it was founded by Rod Drury in 2006. EBITDA sounds complex, but it’s really just a simple measure of company performance, a proxy for its operating profitability.
Clearly, since Xero has never achieved a positive EBITDA before, this has got to be a good thing. Of particular note, the company says, is that its operating revenue (that’s money earned from sales) grew 37% over the same period last year to $187.8m. It also reached a number of milestones in multiple markets; it ticked over 500,000 subscribers in Australia, 270,000 at home in New Zealand, 253,000 in the United Kingdom and even clocked up more than 100,000 in the competitive – but slow to adopt cloud accounting software – market that is North America.
Drury said in a press release, “Xero delivered another strong half-year result, achieving positive EBITDA for the first time, and is emerging as one of the largest and fastest growing listed technology companies in Australasia. We continue to cement our position as the cloud accounting leader in Australia, New Zealand and the UK”.
So far so chipper! But then came the let-down. Xero, which is currently listed on both the NZX (New Zealand stock exchange) and the ASX (the Aussie one), also announced it would no longer be listed on the NZX in a move that has been described as “disappointing”. Drury claimed the company was seeking increased liquidity (more money) and a broader base of potential investors.
“Xero is an ambitious New Zealand company. We will remain headquartered in Wellington and domiciled in New Zealand. We thank the NZX for providing a valuable platform to support Xero’s first decade as a public company. Our success wouldn’t be possible without the support of the NZX and our shareholders,” Drury said.
NZX shares reacted quickly, dropping about 3%. Xero is one of the genuine players on the NZX; it leaving the NZX makes the exchange less attractive to investors, much like how a shop’s stock entices customers to buy. If an exchange doesn’t have big, growing exciting companies on offer, investors will take their money where the action is. And, starting in February 2018, NZX is missing a big chunk of that action.
Investment advisor Grant Davies from Christchurch-based financial advisor Hamilton Hindin Greene says he “didn’t see that one coming” and the move off the NZX was “a bit of a kick in the pants” for the exchange. He says it’s unusual for a company to drop the NZX in favour of the ASX, rather than stay listed on both. He says investing on the ASX is a bit more complicated, and expensive for Kiwis. “You now have to deal with the Australian share registry, and go through a few more hoops with the Aussies.” Xero says Kiwis who own Xero shares won’t have to lift a finger as they “will be automatically transferred to the ASX”. (More information is available on a dedicated section on Xero’s website).
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But it’s a significant loss from our investment landscape – Davies says there are a few wannabe companies on the exchange, but not many “big league growth companies”. He said the NZX will be disappointed, as will Kiwi investors.
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