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Xero hits new all-time high as co. added to FTSE Asia Pacific index

Xero shares [NZX:XRO] were up 5.61% to $45.01 in midday trading for a new all-time high market cap of $5.74 billion.

The gain has seen the accounting software company consolidate its position as the second most valuable company on the local bourse (behind Fletcher Building on $6.7 billion).

Xero has been included in FTSE’s Asia Pacific global equity index, excluding Japan, after its March review, released yesterday.

The company is now included in the index's mid-cap section, with an “investability weight” of 60%.

Fund managers who track the index will now have to buy in to Xero, by March 24.

Other New Zealand inclusions in the index are Fletcher Building (large cap), Ryman Healthcare (mid cap), Z Energy, Metlifecare, Argosy Property, Synlait Milk, Chorus and A2 (small cap).

The same list says Xero, with Ryman, is included in the FTSE All-World index (while Chorus has been excluded), as well as the FTSE All-Cap (LMS) index, alongside Z Energy, Metlifecare and Argosy Property, Synlait Milk and A2.

RATING XERO

Woodward Partners Securities:  Reduce; 12-month target: $27.00 
Forsyth Barr: Underperform; 12-month target: $24.75
First NZ Capital: Outperform; 12-month target: $45.70

XERO HALF-YEAR RESULT (reported Oct 3, 2013)

Loss: 17.1 million
Revenue: $30.3 million
Cash: $230 million
Customers: 250,000 as of February 2014. No geographic breakdown given beyond 100,000 in Australia. (In October 2013, with customers at 211,300, Xero gave the following geographic breakdown - NZ: 85,500; Australia :79,100; UK 30,100; US/rest-of-world: 16,600)
See also NBR's report on Xero's Jan 31 NZX update: Xero customer receipts rise 14% in 4Q as cash burn creeps higher

Xero 12-month price history (NZX.com)

Comments and questions
26

"No major news" ? Actually, the gain came after the FTSE included Xero in its FTSE Global Equity index for Asia excluding Japan.

[Thanks for the heads-up. The story has been updated - Editor]

its a benchmark index - no one would actually use it as a basis to weight their portfolio - 355 constituents...

Milford Funds disagree. They think it will result in 1.8m shares being required by index funds and the like.

On my rough maths, that would mean there would have to be around $28 billion of funds directly tracking this index. I believe that unlikely but happy to be proven wrong.

If I was benchmarked against this index, I would be more than happy to be underweight Xero and let the plebs lose their money on this bubble.

Pete's comment isn't as absurd as you mention "lol" just one unit trust following this benchmark (run by BlackRock) has 644m GBP in it. Take into account other segregated accounts and ETF's run by BlackRock, plus other strategies run by other index trackers, Vanguard and State Street, and there is a decent flow of money, especially with a thinly traded stock such as Xero.

Your point is true with regards to active managers though, it won't have a great effect on their investment processes/holdings.

Wow! Much awesome! How much profit do these guys make?

Still hasn't made a profit yet?

and? You just don't get it do you.

Does Forsyth Barr want to comment on the new high versus their latest rating on XRO?

Forbar has plenty of time to be proven correct. And when bubbles burst they tend to splatter all over the place.

It's only a bubble when it bursts my friend - til then it's an ace.

I bet you got no idea about XRO. Accounting system isn't just his field.

Free float is too slim to be in any relevant index

Was recommended by The Motley Fool Australia today which would have pushed it higher.

Good luck to those who buy, the sellers have crystallized their gains. I recall the phrase "new paradigm" in mid 2000, the same applied then, those who sold into the new paradigm of very high multiples of sales to arrive at valuations (with no profits as yet, they come later) were very happy. Those who bought were taken out the back to the woodshed within 12 months.

If some smart hedge fund owner decides to take the opposite view, and starts selling it could be a very different discussion. No matter how good Xero is, they have huge growth to execute flawlessly over many many years to justify the price today, remember in the short term the market is a voting machine (Xero gets lots if votes) but over the longer term the market is a weighing machine and by any metric Xero is a featherweight.

Have you check and monitor the transaction volume for the last 3 months?

The transaction volume has several high spots, May 2014 at $14 a share then a good number of days mid Oct to mid Nov last year when shares rose from $18 to $35 once the deals were announced ($180M of shares placed off market). Bust since then volume seems to be tracking down.

If my sums are close, 120M shares outstanding and about 150,000 shares traded daily, 0.1% of float. On a comparable basis Facebook trades about 2% of its float daily, and turns a profit.

,,,the nbr have decided to make themselves a participant (willing, or not) in advocating tech companies. The NBR should rename themselves..the national review of tech companies, media companies, and real estate companies. It's almost as if they are in the back hand of tech companies by constantly writing about them.

Meanwhiile...ACTUAL institutional investors continue to flock to interest.co.nz where the standard and objectiveness is higher (and free) and the AFR for paid content. For me, and my firm, we will be cancelling our subscription. We dont subscribe to listen to chris and his mighty gang of tech panders.

Dear Large Subscriber,

I am sorry that you feel that way, but for the record I have the up most respect for Chris Keall. His coverage and understanding of Tech companies is beyond reproach and I believe that there are many hundreds of Member Subscribers who would agree with me.

When you do cancel your Business Subscriptions with the NBR, I will ensure that the process is smooth, I’m the first receiver of ALL customer service enquires.
NBR Publisher.

Chris Keall should disclose how many xero shares he owns

Hi there,

I don't own any shares in Xero, or any other NZ tech company.

As I've written before, I think Xero's a good NZ company. It's got a good product and it's run by smart people. However, it faces a number of strong, well-resourced competitors; notably Intuit in the US (as NBR has discussed in recent articles). It'll be interesting to see how that plays out.

A good company can have a bad share price - or a least an over-inflated one. That's a whole separate issue. I have no idea if Xero's share price will go up or down. It's an area of keen interest to readers, so NBR will continue to canvas analysts' opinions on Xero's sharemarket prospects, as we do with other companies.

If Chris had a dollar for everytime he has had to disclose the fact that he does not hold Xero shares he could probably buy quite a large chunk of Xero shares.

Why are people so keen to pin some kind of bias to Chris. Are they looking for a way to justify the fact that they didn't buy Xero and missed out?

Compare xro to say LinkedIn which has market cap 5-6x higher and compare the value proposition. I don't think we will see the real bubble until xro gets listed in the us. But when it starts paying dividends it will be a cash cow like google - a nice stock to have in my super fund in 5 years time.

linked in has 30x the revenue of xero and makes a bottom line profit - it is the dominant provider in its field and not up against an extremely dominant incumbent - it has to spend very little to obtain its revenue so at some point will become a cash cow - xero will have to continue to spend shiteloads on account managers, developers and accounting specialists to build and maintain its position within advocating accounting firms and will face increasing pricing pressure from competitors - linkedin just needs to maximise its advertising revenue and premium memberships.

Xero was a punt at 90c when I invested - its now a joke.

Can anyone answer this question? If Xero was to list in the U.S. would existing shareholders get an option to secure shares in the IPO or would they have to wait until they hit the market?

This company won't list in the US. This stock is trading on PR and a US listing will end up with too much scrutiny which it wouldn't stand up to. Current valuation is now based on cracking the US market which they never will. Intuitive is a monster.