- H1 2020 has created several opportunities for the technology sector with the sector index reciprocating the positive sentiment with an impressive 13.07% YTD return.
- WiseTech has recently renegotiated earnout arrangements for its various strategic acquisitions.
- Computershare noted marginal impact on its mortgage services and Register Maintenance issuer paid business remained robust amid COVID-19 crisis.
- Xero made significant development during the crisis period to support its customers and has recently revealed insights on the COVID-19 impact on Australian small businesses.
The COVID-19 pandemic, despite the severe damage it has caused to both human health and the world economy, has benefitted specific industries. The technology sector is one such industry that has seen multiple prospects arise from the coronavirus crisis, and tech players have left no stone unturned to make the most of the opportunities.
S&P/ASX Information Technology index is a sector benchmark which includes those companies included in the S&P/ASX 200 index and is categorised as the member of the GICS IT sector and sub-industries.
Amongst various players, WTC, CPU, XRO rank amongst the top players in the S&P/ASX Information Technology index and play an essential role in influencing the index movement. On a YTD basis, the index has improved by 13.07%. On the other hand, the index, from 31 March 2020 till 24 June 2020, was up by 50.55%.
WiseTech, Computershare, and Xero are some of the big players from this sector with each Company having a market cap of over A$7 billion. Any influence on the share price of these companies would have a significant impact on the sector and the index.
In this article, we will look at the recent developments of these three companies and see how their stocks have performed.
WiseTech Global Limited (ASX:WTC)
WiseTech Global Limited offers software solutions to the global logistics industry. On 28 May 2020, WTC announced that it renegotiated earnout arrangements for a number of its strategic acquisitions and further strengthened its solid balance sheet.
Through the second half of FY2020, the Company worked together with its 17 acquired businesses to concurrently lower and close-out future earnouts and switch considerable cash outlays with equity. The action taken by the Company would help in strengthening the balance sheet and liquidity. Other than this, the Company’s priority across the strategic acquisition is to speed up the expansion and development of CargoWise platform, stiffen focus and better line up those resources into the primary CargoWise operations.
As per Richard White, the Founder and CEO of WiseTech Global, the present environment provided the Company with an opportunity to restructure earlier agreed acquisition earnouts and further enhance the commercial efficiency. In recent years, the small, targeted, strategic acquisitions of the Company supported in capturing hard-to-access capability, development capacity & feet-on-the-ground in key locations. The shared vision and alignment with the Founder Managing Directors helped in closing the agreements effectively, eliminate considerable contingent cash obligations & lessen future contingent liabilities.
These negotiations supported the Company in:
- Lowering contingent liabilities to A$68.5 million (from A$215.5 million).
- Elimination of future contingent cash liabilities worth A$151.5 million.
- Issuing equity worth A$81.4 million. Out of these A$81.4 million, A$45.7 million remains escrowed for one year.
- Substitution of cash earnouts with equity for Cypress, Depot Systems, Forward, and SISA.
- Close-out of each future earnouts for ABM Data, CargoIT, Cargoguide, CargoSphere, CustomsMatters, DataFreight (LSI), and Microlistics, among others.
In the upcoming period, the Company would start on a similar earnout review for various outstanding acquisitions, which are geographic grips with product development targets already in place.
Also, WTC confirmed that its financial position remains robust as its distinctive commercial model provides solid cash generation, positive cash flow and significant liquidity to support its strategic & operational initiatives.
Based on the recent negotiations concerning the earnout arrangements for various strategic acquisitions, WiseTech is optimistic that it would be able to strengthen its balance sheet. It is also hopeful that digital transformation would accelerate and drive the demand for global technology and integrated platform in the coming period.
In FY2021, WTC has plans to take the necessary actions to line up critical technology development, drive cost, cash as well as capital efficacy, and simultaneously build a competitive position worldwide.
At AEST 3:51 PM on 25 June 2020, WTC shares were trading at A$21.710, down 1.809% from the previous close. WTC has a market cap of A$7.15 billion.
Computershare Limited (ASX:CPU)
Computershare is known as a market leader in transfer agency & share registration, employee equity plans, proxy solicitation & stakeholder communications.
The Company also focuses on corporate trust, mortgage, insolvency, class action, utility & tax voucher administration, and numerous other financial & governance services.
In the investor briefing released on 20 May 2020, CPU confirmed that its key business lines were robust and in line with the expectations.
- Mortgage Services: Experienced limited revenue impact from the portfolio run-off. MSR (Mortgage servicing rights) market value drop was due to the volatile rate environment. CPU did not experience any effect on servicing revenue. CPU to remain careful while investing in building a sustainable, high-quality servicing business.
- Employee Share Plans: The recurring issuer paid fees showed growth. Transaction revenues got subdued during the period. However, it started showing early signs of recovery during May 2020. Also, Equatex integration was on track which provided expected synergy benefits.
- Issuer Services: Its Register Maintenance issuer paid business remained solid and continues to perform well. CPU noted an increase in the Shareholder numbers since April 2020, despite the prevailing market volatility. Also, an improvement was seen in the corporate action activity across various geographies.
- Business Services: In this division, the Company noted continued growth in the bankruptcy filing. Its Corporate Trust revenues got benefitted by from the improved activity levels.
- Communication Services: Deferrals in dividend payments and annual meetings impacted volume in this segment.
At AEST 3:51 PM on 25 June 2020, CPU shares were trading at A$13.100, down 1.725% from the previous close. CPU has a market cap of A$7.21 billion.
Xero Limited (ASX:XRO)
Xero Limited provides beautiful & simple cloud-based accounting software service for small companies & their advisors globally.
XRO Revealed Insights on the impact of COVID-19 on Australian small businesses:
On 11 June 2020, XRO released an analysis related to the business impact of COVID-19 in March and April, from its Small Business Insights (SBI) program in association with AlphaBeta Australia. As per the analysis, it was found that 13% of jobs were lost in small business from March beginning to the end of April. Before the JobKeeper was announced on 30 March 2020, small business jobs declined 10.5%. Once JobKeeper was announced, job losses got stabilised with declines of less than 3% since then.
The Small Business Insights data also confirmed that the small business sector was twice as badly influenced as businesses overall concerning job losses.
There was a drop of 11% in the revenue on average for Australian small businesses in April 2020 as compared to the previous corresponding period.
To Know more developments of XRO in past three months, click here.
At AEST 3:51 PM on 25 June 2020, XRO shares were trading at A$89.490, down 1.301% from the previous close. XRO has a market cap of A$12.88 billion.