Company Overview:

Xero Limited (ASX: XRO) is a software-as-a -service company which offers a cloud-based accounting software, providing online business solutions for small businesses and their advisors. This Report covers the Fundamental Update, Price Action, Technical Indicators Analysis along with the Support Levels, Resistance Levels, and Recommendation on this one stock.

Fundamental Update for FY23 (For the period ended 31 March 2023):

• Operational Performance: The company reported operating revenues of NZD 1,399.9mn in FY23, up 28% on the pcp. On a constant currency basis, operating revenue went up by 25% on pcp. Core accounting revenue went up by 27% on pcp, whereas Platform revenue increased 26% on a year over year basis, indicating higher contributions from payments, payroll and recently acquired businesses.
• Margin Details: During the period, EBITDA declined on a year over year basis, as the company incurred non-cash impairments and associated costs, and restructuring charges. Notably, the gross margin stood at 87.3% in FY23, flat on a year over year basis.
• Liquidity Position: The company’s net cash amounted to around NZD 97.4mn at the end of FY23, compared to NZD 51.2mn reported at the end of FY22. Total available liquid resources came in at NZD 1.1 billion as at 31 March 2023.
• Outlook: In order to drive long-term shareholder value, the company aims to grow its global small business platform and maintain a preference for reinvesting cash generated. Further, it continues to operate with a disciplined cost-management approach, which aids XRO to spend on new products and customer growth. As a percentage of operating revenue, total operating expenses is expected to be ~756% for FY24. XRO continues to invest in research and development to provide differentiated products and services, which adds value to its software solutions.

XRO’s Technical Analysis:

On the daily chart, XRO's price is experiencing a short-term rally, evidenced by higher highs and lows. Nonetheless, the RSI (14-period) indicates signs of weakening after forming a small top divergence relative to the price, suggesting the possibility of a correction in the near future. The stock's price is currently trading above both the 21-period and 50-period SMAs, which might serve as support levels for the stock; in contrast, the stock's most recent high might act as a resistance level. The significant support level for the stock is situated at AUD 104.25, while the crucial resistance level is located at AUD 120.00.

Daily Technical Chart – XRO

The stock was analysed as per the closing price of AUD 112.11 per share, as on 07 Jun 2023, up by +0.75%. Xero Limited (ASX: XRO) was last covered in a report dated ‘14 March 2023’.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest, taking into consideration the risk-reward scenario.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an Indicator nor a guarantee of future performance.

Note 2: Investment decision should be made depending on an individual’s appetite for upside potential, risks, and any previous holdings. This recommendation is purely based on technical analysis, and fundamental analysis has not been considered in this report.

Note 3: Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.

The reference date for all price data, currency, technical indicators, support, and resistance levels is June 07, 2023. The reference data in this report has been partly sourced from REFINITIV.

Technical Indicators Defined:

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trends. If the prices are trading above the 21-period, prices are currently in a bullish trend (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trends. If the prices are trading above the 50-period, prices are currently in a bullish trend (Vice – Versa).

The Orange/ Yellow colour line represents the Trendline.

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period), which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status, while a reading of 30 or below suggests an oversold status.

Disclaimer

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