The migration of New Zealand stocks to the Australian Securities Exchange (ASX) continues apace, with the latest trans-Tasman listing arriving today, business travel and expenses software developer Serko – one of the Kiwi bourse’s top performers – listing under the ASX code SKO.
Serko brings to 55 the number of New Zealand companies listed on ASX, with most of these dual listings with the home exchange. Of the top ten New Zealand companies by market value, only one, retirement village and rest home operator Ryman Healthcare, is not listed on the ASX; although, given its expansion across the Tasman – it has two retirement villages in Victoria and has secured sites for six more – that can’t be far off.
Let’s look at three New Zealand success stories and analyse what that means for Serko.
Xero (XRO)
It makes sense for Kiwi companies to list their stock in a bigger and deeper capital market, although one of the stars of the show on the NZX – cloud accounting software developer Xero – raised eyebrows late last year with its decision to delist in New Zealand, making the ASX listing the primary listing. While more than half of Xero’s employees live and work in New Zealand, the company said, in explaining the move, that 80% of its revenue now came from outside New Zealand.
“Our strategy is to drive further growth in markets like UK, North America and Southeast Asia. As Xero continues to grow, gaining enhanced access to deeper capital markets, increased liquidity and a broader base of potential investors is critical to fulfilling our ambition to be the leading global small business platform serving millions of customers,” Xero told investors.
Xero has become the flagship Software-as-a-Service (SaaS) stock on the ASX. XRO came to the ASX in late 2012 at $4.65, and has become a ten-bagger within six years – the stock reached $47.44 earlier this month, and now trades at $46.17. The company has lifted its revenue while on the ASX from NZ$13.4 million to NZ$484 million, but has not yet made a profit. With the first annual positive earnings before interest, tax, depreciation and amortisation (EBITDA) achieved in the year to March 2018, analysts expect FY19 to be the first year of net profit, and profit to surge fourfold (at earnings per share [EPS] level) in FY20. But this expectation is already in the share price: analysts view the stock as over-valued: Thomson Reuters has a consensus target price of $41.86.
As another SaaS operator, Serko is likely to attract plenty of attention, being a space that Australian investors like, and in which New Zealand stocks have good form. As well as Xero, Kiwi cloud accounting software providers Vista Group International (VGL) and payments app developer Pushpay Holdings (PPH) have performed well for Australian investors.
Vista Group International (VGL)
Vista Group International is the global leader in its business, of cinema management software. The company’s biggest product, Vista Cinema, provides cinema management software to the world’s leading cinemas. Vista has mainly been installed enterprise software, but VGL is progressively moving it to the cloud.
VGL is moving into China in a big way, and the Chinese market represents a big opportunity for the company. I wrote favourably of VGL in November last year, at $2.50: the stock has moved to $3.58, which prices it at 60 times historical earnings – that is probably too toppy a rating to buy it now, although the growth outlook is strong.
Pushpay (PPH)
Pushpay has developed a mobile-based payments tool that has found a surprisingly lucrative niche in the church donations and tithes niche, most notably in the US “Bible Belt,” in the southwest and southeast of the country. It has a broader market than that – its products are also used by non-profit organisations, charities and schools in the US, Canada, Australia and New Zealand, and 15 other countries – but the “faith sector” has emerged as the company’s specialty. Pushpay’s eChurch technology is used by nearly 7,300 customers, including 54 of the top 100 churches in the US, and 13 of the top 20. Church donations is a US$123 billion ($166 billion)-a-year market. Pushpay says it is the market leader in the US faith sector, with a 2% estimated market share, giving it plenty of room for growth – given that is the most sophisticated product in the space.
The marketing secret of the Pushpay technology is that it encourages people to give more, through technological ease. The app helps churchgoers commit to regular giving, and that brings about a much more predictable stream of recurring revenue, which is good for the church client and for Pushpay. The company processed 12.3 million transactions in the year to March 31, 2018, with an average value of US$192 ($259) over the year, across 19 countries. Average revenue per customer was US$989 ($1,336), from US$727 ($953) a year earlier.
Like Xero, Pushpay has not yet struck profitability: the company expects to break even at cashflow level by the end of 2018. Pushpay doubled its revenue to US$70.2 million ($94.9 million) in the financial year ending 31 March 2018. The company has a long-term goal of attracting 50% of the medium and large church segments, a market it says is worth more than US$1 billion in annual revenue to it.
Pushpay has experienced huge growth since listing on the ASX in late 2016. The company dual listed on ASX in October 2016 through a $54 million initial public offering (IPO). Issued at $2.10, Pushpay shares surged as high as $4.15 earlier this month but have eased back to $3.93 after the announcement of a $92 million selldown by the company’s co-founder and executive director, Eliot Crowther, who is selling his entire 9% holding in the company. Pushpay is now a $1.1 billion company on the ASX: while it does not have a price/earnings (P/E) ratio, it certainly appears to have a big growth opportunity, particularly in the US. The company was planning a US listing, but has shelved this idea.
Serko outlook
All of this means that Serko will attract keen attention on the ASX. The stock was the best performer on the NZX in 2017, starting the year at 29 NZ cents and ending it at NZ$2.19, and it has kept going – having managed a record high of NZ$3.01 earlier this month, Serko now trades at NZ$2.90.
Serko offers cloud-based self-booking tools (SBTs), which save businesses time and money. By insisting on the use of an SBT that restricts executives to booking preferred fares and hotels, employees are far less likely to stray outside company policy. Another major advantage of using an SBT is the “low-touch” cost for processing bookings: airlines and travel agents charge much lower transaction fees for self-booked trips, compared with those that require hands-on work by an agent. Serko says more than $6 billion of travel is booked through its systems annually. The systems use algorithms to closely match travellers’ previous bookings with their habits and their employers’ corporate travel rules.
The company wants to build Serko into a global brand from its Australasian base. Serko already generates about 95% of its revenue from Australia, where its software is used by most of the corporate travel companies, and a range of blue-chip customers including Coca-Cola Amatil, Wesfarmers, Santos, PwC and KPMG. The company delivered a first-half profit, positive cash flow and stepped up plans to launch in North America. Serko’s “next-generation” travel management application, Zeno, will be launched later this month: Zeno will use intelligent technology, predictive workflows and a global travel marketplace to transform business travel across the entire journey.
Serko certainly appears to have the attributes to make a success of its ASX listing and emulate the share price direction of its Kiwi software peers.
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