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Growth and Expansion Trajectory for Titans- APT, XRO, WTC

  • May 14, 2020 10:08 PM AEST
  • Hina Chowdhary
    Director, Equities Research Hina Chowdhary
    1406 Posts

    Hina Chowdhary is the Director, Equity Research at Kalkine and has an extensive experience of about 15 years in the area of Research, which includes 5+ years in Equities Research particularly.She has earned a Master of Science degree from the renowne...

Growth and Expansion Trajectory for Titans- APT, XRO, WTC

Various technology stocks have attracted steam amid lockdown and social distancing measures adopted by countries amid the COVID-19 pandemic. People are relying more and more on technology for multiple reasons while staying at home. Australia’s technology sector stumbled during March before rebounding in May, reflecting positive momentum.

Gold MTF non-AMP

Discussed below are three technology stocks, catering to their customer base while managing COVID-19 risks.

Afterpay Limited (ASX: APT)

Australian financial technology company, Afterpay Limited (ASX: APT) caters to its client base in the US, UK, Australia and New Zealand with payment related services. The Company recorded strong Q3 results across the business. APT last traded at A$41.65 on 14 May, down 4.165% from its previous close.

Strong Sales Growth in Last Quarter

The Company’s Q3 results reflect that BNPL players are continuing to attract customers. APT performed strongly with sales growing 105% at A$7.3 billion year to date (YTD) compared to pcp. March was the Group’s third consecutive month when it recorded largest underlying sales while the Group’s income margins for March and FY20 YTD were much higher than H1FY20.

Gross losses are estimated to be about 1% during March while net transaction margin stood at about 2% on a year-to-date basis, both in line with H1 FY20. ANZ region persisted in being highly profitable and cashflow positive. Moreover, the report suggested that APT is in no need to raise capital due to a robust balance sheet and liquidity position.

The global median age of APT’s active customers is 33 years as at 1 April 2020, with active customer base recording a substantial 122% rise to 8.4 million as of 31 March 2020 from 3.8 million in pcp. Customer growth continued strongly since the end of H1FY20, with the US and UK increasing 24% and 30%, respectively. The Group had aimed to have 9.5 million customers by 30 June 2020, but due to uncertainty and other risk factors amid COVID-19, APT has withdrawn the guidance.

About 90% of its gross merchandise value came from repeat customers during Q3FY20, on a global level, highlighting the gumminess and quality of its customers.

ALSO READ: U-turn for Tech Stocks from Early signs of Distress to a Positive Spring – 5 COVID-Safe Stocks

Active merchants grew by 78% to 48.4k as at 31 March. Few merchants that went live or contracted during the March quarter of 2020 in Australia were Lancome, eBay, Samsung, and YSL Beauty.

The Group is already preparing to launch in-store in the US and expand in Canada. It plans to exceed the underlying sales target for mid-term of approximately A$20 billion by FY22 with net transaction margin of 2% in place.

Tencent Holdings Becomes Substantial APT Shareholder - On 30 April 2020, a Chinese fintech firm, Tencent Holdings Limited bought a 5% stake in APT, becoming a substantial shareholder in the business.

The Company is well-positioned to get through the COVID-19 period due to its strong balance sheet and dynamic business model, according to APT CEO Anthony Eisen. Its customer-centric model that encourages budgeting and responsible spending is expected to support the Company more in a post COVID-19 environment.

Xero Limited (ASX: XRO)

Online accounting software provider, Xero Limited (ASX: XRO) has announced its full-year earnings to 31 March 2020, reflecting strong growth with a positive free cash flow and net profit. Social distancing and COVID-19 impact on the global business environment had a modest effect on the Company’s performance. However, there has been some drop in annualised monthly recurring revenue (AMRR) progress during March, owing to the COVID-19 impacts. The outcome of which will be reflected in FY21 results.

First Full-Year NPAT for XRO

  • Operating revenue grew by 30% to NZ$718.2 million
  • Net profit of NZ$3.3 million, an improvement of NZ$30.5 million over a net loss of NZ$27.1 million
  • 26% growth in total subscribers to 2.285 million
  • Free cash flow stood at NZ$27.1 million, taking total available liquid resources to NZ$686.1 million
  • EBITDA of NZ$137.7 million, an improvement of 88% compared to NZ$73.2 million

Rise in net profit was driven by growth in operating revenue, improved gross margin, and disciplined management of operating costs. In an uncertain COVID-19 environment, Xero has prioritised on driving cloud accounting all over the world, while continuing to build on the global scale and innovation and boosting small business platform.

The Company delivered operational revenue growth of 30%, which was attributed to a surge in subscriber base in all markets in FY20. Digitisation of tax and compliance stayed as a significant demand driver for its cloud accounting solutions.

Australian subscriber base grew by 26% in the year to reach 914,000. Net subscriber additions of 188,000 in Australia set a new high for net additions in all the markets. The subscriber base grew in the UK by 32%, North America by 24%, New Zealand by 12% while in the rest of the world, subscribers grew by 51%.

Though Xero has performed strongly in FY20, the Group's trading in initial phases of FY21 has been affected by COVID-19. Xero.

The stock last traded at A$79.77 on 14 May, down 4.775% from its last close.

WiseTech Global Limited (ASX: WTC)

WiseTech Global Limited (ASX: WTC), a logistics software company, provides cloud-based solutions, globally. The stock last traded at A$18.90 on 14 May, down 4.21% from its last close.

WTC Re-affirms FY20 Guidance; Q1 in line with Guidance

WTC re-affirmed its FY20 guidance on 22 April 2020, asserting that its business in the first quarter of the year 2020, traded in line with the anticipated range for FY20 guidance.

The Company offset the expected reductions from COVID-19 through continued growth in revenue, cash generation from operations and addition of new users. As per its business update for the March quarter of 2020, the Company has a substantial liquidity and robust financial position with net cash of A$230 million at 31 March 2020 while its debt facility of A$190 million stayed undrawn.

The Company expects coronavirus to continue impacting global supply chain movements. Though the business of WTC has stayed resilient, coronavirus can have impacts on the logistics industry that the Company supports and economies it serves.

While many companies continue to struggle amid the COVID-19 period, tech companies are eyeing it as an opportunity to capture a share of the market.



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