3 Favourite ASX IT Stocks as Market Hits 3-Month Low – Afterpay, Xero, and Appen

  • September 22, 2020 08:03 PM AEST
  • Team Kalkine
3 Favourite ASX IT Stocks as Market Hits 3-Month Low – Afterpay, Xero, and Appen

Summary

  • The prevailing uncertainty continues to impact the markets with the S&P/ASX 200 still far from pre-COVID-19 levels.
  • The drop in Wall Street, coupled with rising COVID-19 cases worldwide, has affected the ASX indices.
  • Technology index was the worst hit during September 2020 due to the massive fall in the Wall Street index.
  • APT, XRO and APX, despite their impressive financial and operational performance, have seen their respective share price drop in the last month.

Equity markets around the globe continue to witness, and be affected by, uncertain times. This is evident from the performance of the ASX benchmark index S&P/ASX 200, which is still far from reaching pre-COVID levels. Recently, the index was impacted by the fall in Wall Street Index along with a rise in the number of COVID-19 cases in European nations and other countries. The ASX benchmark index, S&P/ASX 200, hit a 3-month low yesterday and fell a further0.66% today to end at 5784.1 points.

On the other hand, S&P/ASX 200 Information technology index, which surpassed its pre-COVID levels, and attained a new high on 25 August 2020 at 1932.70, witnessed a sharp decline in September 2020. The index, which stood at 1829 points on 01 September 2020, reached 1708.40 points by the market close on 21 September 2020, reflecting a fall of ~6.6%.

The tech index recovered today, closing 2.21% higher while the S&P/ASX All Technology Index was also up 1.44%.

Do Read: Is Nasdaq’s performance taking a toll on ASX technology stocks?

On this backdrop, let us look at a few ASX-listed IT stocks and see their performance and the recent update.

Afterpay Limited (ASX:APT)

Leading BNPL player Afterpay Limited has noted a significant growth of late, driven by FY2020 results and recent developments. However, in September 2020, the shares dropped considerably as a result of weak Wall Street index performance. APT shares, from A$84.090 on 01 September 2020, reached A$76.540 on 22 September 2020, a drop of ~9%. In the last three months, the shares have provided a return of 29.20% (as on 21 September).

FY2020 Result:

On 27 August 2020, Afterpay announced FY2020 results and reported strong growth of 112% in underlying sales to A$11.1 billion. The number of active customers and active merchants increased by 116% and 72% respectively. The total income of the Group increased by 97% to A$519.2 million.

In Q4, the Company reported strong performance across all locations. The performance has continued in FY2021 as well. Online sales in ANZ fast-tracked into July and August.

Recently, the Company announced that its subsidiary Clearpay (Europe) Limited has entered into a Share Purchase Agreement to acquire 100% of shares in Pagantis. Initial steps have been taken to explore opportunities in select Asian markets. APT has plans to focus on this front as well in FY2021.

Do Read: ASX All Technology Index Continues to Slump, Afterpay Under Pressure: Is the Bottom Far Deeper?

Xero Limited (ASX:XRO)

Online accounting software business provider Xero Limited reported a significant growth in its share price since the market bounced back on 23 March 2020. By 02 September 2020, the shares had reached A$103. However, since then, the prices have dropped by 7.7% ending at A$95.060 today. In the last three months, the shares have provided a return of 2.87% (as on 21 September).

Do Read: Is ASX100 Xero share price hitting new record high levels?

Xero’s FY2020 Performance:

Xero’s performance in FY2020 (period ended 31 March) was excellent with a 30% growth in operating revenue to NZ$718.2 million. The net profit stood at NZ$3.3 million, a significant improvement from last year’s net loss of NZ$27.1 million.

Appointment of Independent Non-Executive Director:

On 07 September 2020, Xero announced the appointment of Steven Aldrich as an independent non-executive director to its Board. Steven has expertise in technology, and product development and the Company considers that his appointment would be of great value to Xero and Board.

Acquisition of Waddle:

On 25 August 2020, Xero declared the acquisition of cloud-based lending platform, Waddle. Waddle would help small businesses to access capital via invoice financing. The Company believes that through this acquisition, it would be able to grow the small business platform and can also address critical small business financial requirements.

Appen Limited (ASX:APX)

Appen Limited is a provider of high-quality training data that can be deployed on Artificial Intelligence. Appen shares have performed well, hitting a 52-week high on 26 August 2020. After that, the shares have dropped on ASX. On 01 September 2020, the shares which settled at A$34.01 reached A$32.500 on 22 September 2020. In the last three months, the shares have delivered a return of -7.09% (as on 21 September).

Quarterly Rebalance:

In the recent quarterly rebalance announced by S&P Dow Jones Indices, Appen has been included in the S&P/ASX 100 Index.

1H FY2020 Results:

On 27 August 2020, Appen released its 1H FY2020 results for the period ended 30 June 2020. The Company during the period maintained high growth with exceptional revenue growth of 25% to A$306.2 million. Underlying EBITDA grew up by 6% to A$49.1 million and statutory EBITDA by 44%. The Board has declared a 50% franked interim dividend of 4.5 cps, up 12.5% as compared to the previous corresponding period.

Mark Brayan, the CEO of Appen, stated that he is pleased with the result achieved by the Company. He confirmed that Figure Eight strongly became a part of Appen. The almost fully integrated business has been delivering on the strategic thesis of the Company. Four out of five big clients of Appen are presently using Appen’s annotation platform. Further Appen signed an enterprise-wide platform deal with one amongst them that consist of a US$80 million annual commitment.

Presently, the Company has a robust financial position. Appen is growing constantly and highly profitable with the net cash of A$126 million as at 30 June 2020.

Guidance:

  • YTD revenue along with orders in hand for delivery in FY2020 was approximately A$475 million in August 2020.
  • The full-year underlying EBITDA for FY2020 ended 31 December 2020 is projected to lie in between A$125 million to A$130 million.

 

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