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United States : XERO dubbed "Apple of accounting".

Dual-listed accounting software start-up Xero is named the ''Apple of accounting'' by heavyweight investment bank Credit Suisse, which is the first international bank to seriously assess the company's prospects. It slapped an ''outperform'' rating on Xero shares with a price target of $NZ45.70, which is well ahead of its record-high $NZ35.75 trading level on the New Zealand stock exchange and $34.48 on the ASX, where the stock was up a massive 19 per cent for the day on Wednesday.

This was just the start for the growth-oriented company, Credit Suisse said, as Xero could grow to a $10 billion Nasdaq stock within five years which is about three times its present sharemarket worth.

Shares in Xero have surged this year and especially over the past few weeks when it completed a share placement at $NZ18.15 that sparked a re-rating of its shares. The stock is up an eye-popping 425 per cent since the start of the year.

Credit Suisse noted ''a proven record of execution, customer acquisition momentum over next 18 months, potential for sustained 70 to 100 per cent revenue growth and valuation upside in a success case''.

''As with any tech company going global, risks are extreme. Xero faces able competitors, especially Intuit. Risks include: execution, competitive response, key man, security and high market beta. We expect customer/revenue growth to continue to drive share performance, as those will evidence whether Xero is tracking for failure or success.''

Xero won the early backing of accounting software professionals like MYOB founder Craig Winkler, a large shareholder in Xero. Xero provides subscription accounting software which uses cloud computing to offer a low-priced product. This has given it a head start over its main competitors worldwide like Intuit in the US, Sage in Britain and MYOB and also Reckon in Australia and NZ.

Investor interest in the company's shares jumped after a big rise in customer numbers in Australia, which now equal those in New Zealand, although its product is available here only for a comparatively short period. Paying customers in Australia have doubled in less than six months to 75,000 and it now has 30,000 clients in Britain. Australian customer numbers rival those in New Zealand, although the company has not updated customer numbers for about three months.

Credit Suisse reckons a ''tipping point is imminent'' in Australia, where Xero has now reached a ''virtuous cycle of brand awareness''. But the key is the much larger US market where Xero has only an estimated 16,600 customers but is working hard to expand its presence.

As per investor interest, Xero has greater penetration and growth prospects in Britain and Australia in the near term, as it works to make critical mass in the US.

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Publication:Mena Report
Geographic Code:8AUST
Date:Nov 7, 2013
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