Wednesday, October 15, 2014

Xero shares tipped to hold up once cap goes

Tom Pullar-Strecker for writes:  The caps are about to come off Xero investors selling about $169 million-worth of shares but an analyst doesn't believe they will be dumped on the market.

Xero raised $180m last year by selling 9.9 million shares for $18.15 each. One of the conditions was that buyers did not sell any of the shares until after the close of trading today.
Xero's shares have drifted down 65 per cent since they hit a peak of $45.99 in March, but Forsyth Barr analyst Blair Galpin did not expect anything dramatic once the 9.9 million shares came out of escrow.
More than 80 per cent of the shares were bought by US investors.
"All of the investors are very smart and would know what would happen if they tried to dump all their shares," Galpin said.
"It's hard to know, but I am not expecting a lot [to go be sold]."
Xero shares fell 4 per cent to $17.04 this morning but volumes were light and its share price remained above its intraday and annual low of $16.75 touched yesterday.
A separate fear weighing on Xero investors is that some index-tracking funds could be forced to sell down their holdings if the company dropped out of indices such as MSCI Global Standard Index because of its subdued share price.
Xero joined that index in May.
However, Galpin said passive funds usually had some flexibility about how they reacted to index changes, which would not in any case be immediate.
"The indices often have a review process that looks at how companies have traded over quite a long period," he said.
Xero's inclusion in some indices could depend on how it traded over the next couple of months, he added.
Woodward Partners questioned on Tuesday whether Xero should give up chasing growth in the United States and instead conserve its cash to consolidate its stronger market positions in New Zealand, Australia and Britain.
Galpin said Forsyth Barr would consider over the next month or so how likely it was Xero might pull back from the US.
"We haven't looked at it too closely, primarily because with its cash on hand it is probably not a decision they are going to make in the next two or three months," he said.
"I don't think you are likely to see a decision to just pull out of the US any time soon based on Rod's comments.
"It might be more likely over time to look at other ways to reduce investment in that market but that is just speculation.
"They have got the cash there to give the US a decent go and see how things go over the next six to nine months before making that call."