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The technology sector is considered amongst the most preferred sectors one which an investor is inclined to include in his portfolio. In the calendar year 2019, the technology sector delivered growth of 33.47 percent and surpassed that of its benchmark index, which delivered a return of 23.4 percent.
However, post the outbreak of Coronavirus, and due to global economic disruption, the sectors as well as the stocks of the companies within the sector have declined significantly.
The S&P/ASX 200 Information Technology index which was 1604.40 on 17 February 2020 dropped to 1287.50 on 28 February 2020, representing ~ 20 percent drop.
On 2 March 2020, by the end of the trading session, it zoomed by 0.84 percent above its previous close and settled at 1,298.4.
Australia China Bilateral Relations:
Australia, in 1972 established a diplomatic relationship with the People's Republic of China and established an embassy in Beijing in 1973. Australia has a bilateral relation with China which is established on solid economic as well as trade reciprocations. In 2014, the Prime Minister of Australia as well as the President of China agreed to expand the relationship between the two nations in the form of a comprehensive strategic alliance.
Under the partnership, both countries are committed to managing differences if and when they arise in a constructive way.
Also, during December 2015, Australia and China signed a free trade agreement which unlocks significant opportunities for Australia in China. China is the largest export market for goods and services of Australia, and it accounts for nearly 33 percent of the total exports as well as a growing source of foreign investments.
Thus, any impact on China has a direct effect on the Australian economy.
The impact on the Chinese economy was also seen in Australian sectors as well. However, when we talk particularly about the Information Technology sector, the YTD performance of the index is -7.69 percent. Apart from the global economic factors, the performance of the big players from the sector also impacts the sector performance.
In this article, we would be talking about the three big players Xero Limited, Appen Limited and WiseTech Global Limited, which form a part of the WAAAX stocks that also influence the IT sector. These companies are also an important player in the newly formed S&P/ASX All Technology index.
Xero Limited
Xero Limited (ASX: XRO), the provider of online accounting software for small businesses reported a significant fall in its share price during the time frame of 19 February 2020 to 28 February 2020. The shares which closed at $89 on 19 February dropped to $73.65 on 28 February, i.e. by around 17.25 percent. However, on 2 March 2020, Xero’s shares closed at $74.590, an increase of 0.940 points or 1.276 percent from its previous close.
The company had delivered a strong result in its 1H FY2020 ended 30 September 2019, with 32 percent growth in revenue to $338.658 million, 30 percent increase in subscribers as well as annualised monthly recurring revenue and reported a net profit of $1.336 million.
With the focus to grow the small business platform and maintain a preference for reinvestment of the cash generated, the company expects its free cash flow for the full year 2020 to be in a similar proportion of total operating income in FY2019 ended 31 March 2019.
The stock of XRO was impacted by global factors. As a result of the drop in the share price, the shares of Xero were available at a lower price leading to investor interest.
Appen Limited
Appen Limited (ASX: APX) is another company under the WAAAX stocks and amongst the index movers. From 17 February 2020 to 28 February 2020, the shares of Appen dropped from $27.18 to $20.72, i.e. a ~ 23.76 percent fall.
Appen Limited is a leader in the growth of high-quality datasets datasets for AI & machine learning. The company provides global coverage from 9 offices & various locations around the world. These offices are located in Australia, China, the Philippines, the United Kingdom, and the United States of America.
The company reported a 47 percent growth in its revenue to $536 million in FY2019 ended 31 December 2019. Underlying EBITDA grew by 42 percent to $101 million while statutory EBITDA grew by 29 percent to $87.9 million. Underlying NPAT was up 32 percent to $64.7 million as compared to FY2018. Appen Limited announced a final dividend of 5 cents for every share.
Outlook:
The company continues to improve its place in a high growth market via investments in technology, sales & marketing, government markets & China. In 1H FY2020, the company expects that the investment in sales and marketing margin would soften to mid-teens. Also, the company expects a slight impact from the Coronavirus on its revenue and earnings. Further, the YTD revenue along with the orders in hand at February 2020 was 210 million. The company projects its underlying EBITDA for FY2020 ended 31 December 2020 to be in between $125 million - $130 million.
As predicted by the company in its FY2020 outlook that there might be a slight impact of Coronavirus which was reflected on APX’s share price movement post 17 February 2020 till 28 February 2020. On 2 March 2020, with the entrance of more buyers in the market the share price of APX zoomed 7.143 percent above its previous close and settled at $22.20.
WiseTech Global Limited
The shares of WiseTech Global Limited (ASX: WTC), the provider of software solutions to the logistics industry, reported a significant fall in its share price post the declaration of its 1H FY2020 results for the period ended 31 December 2019. The company reported strong growth in its revenue, Gross profit, Operating profit, NPATA, NPAT, EPS as well as dividend per share. Total revenue and gross profit increased by 31% each compared to the prior corresponding period. NPATA and EPS increased by 22% and 147% compared to pcp, respectively.
However, the coronavirus outbreak coupled with the effective closure of China are creating adverse consequences on manufacturing, constricting supply chains & trading throughout the world. China is WiseTech’s key driver of the global manufacturing supply chain as well as around 16 percent contributor to the global Gross Domestic Product. However, WiseTech Global has diversified sources of revenues to result in robust organic revenue growth throughout its global platform.
On the day of the announcement, the shares of WTC dropped more than 27 percent and from 18 February 2020 till 28 February 2020, the shares fell from $29.44 to $15.1 per share, i.e. ~ 49 percent and reached closed to its 52 weeks low price. The shares were available at a lower price which made buyers more dominant in the market. The shares on 2 March 2020 zoomed ~ 12.715 percent and settled at $17.020. Around 4,407,649 shares traded on ASX.
