Rudi’s View: Xero, Treasury Wine And Appen

rudi-views
Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jan 16 2020

First update for the new calendar year and already plenty of material to combine. Which is why Part Two will follow suit on Friday morning (tomorrow).

By Rudi Filapek-Vandyck, Editor FNArena

First observation to make is that one of my personal favourites in the Australian basket of Technology Superstars (a la Sam Neill and Russell Crowe), accountancy cloud software services provider Xero ((XRO)), has made it into the Global Top 30 Best Ideas for 2020 compiled by analysts at RBC Capital.

Minnow Xero (in the bigger scheme of things) has joined the likes of Alibaba, Alimentation Couche-Tard (see also Caltex Australia ((CTX)), Barrick Gold, Diageo, Gilead Sciences, Salesforce.com, Uber Technologies, Visa and 21 other names on RBC's shortlist of best investments to own for the year ahead.

Before anyone starts mumbling about a price-earnings (PE) ratio that is now approaching 1000x (Not a typo. Check it out yourself via Stock Analysis on the FNArena website), here's a quick summation of why RBC Capital is convinced this stock can still be bought and owned beyond the immediate outlook:

-Xero is the only global accounting software player built in the cloud as a SaaS platform since inception for small-medium enterprises (SMEs). This gives the company  material global scalability advantages versus competitors who started life as desktop or on-premise software packages;

-Xero's Australian market share is projected to double to circa 65% by 2025 with market share in New Zealand to surge to around 75%;

-In the UK competitor Sage is struggling to cope with its transition and Xero's market share is expected to triple to circa 24% by 2025;

-Things look tougher in the US where incumbent Intuit is better in defending its home turf. Nevertheless, RBC Capital believes a tripling in market share to 2% by 2025 should be possible, cementing Xero's position inside the US Top Three.

I won't bother you with any of the financial implications other than that the analysts estimate Xero's total addressable market (TAM) in Australia and New Zealand alone should reach NZ$1bn per annum while markets in the UK and the US are twice that size and 10x that size respectively.

Xero is proudly owned in the FNArena/Vested Equities All-Weather Model Portfolio and has been one of the best performing investments over the past five years.

Paying subscribers have full access to my research into All-Weather Performers via a dedicated section on the website where Xero sits under the category of Emerging New Business Models, alongside Altium ((ALU)), NextDC ((NXT)), and others.

RBC Capital's price target for the year ahead is $90. At the time when the Global Top 30 report was released in December, the shares were trading at $81.05. This compares to $86.27 at the time of writing today (it's Risk On this week, alright).


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Analysts at CLSA, long term supporters of the premiumisation story that has unfolded at Treasury Wines ((TWE)) have -again- reiterated their High-Conviction Buy rating for the stock. CLSA does not ignore the fact that things have gotten tougher in the US market, which is why their forecasts have been reduced. But there is so much more to like about this company and its prospects, in their view.


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