Canberra Times:
Here's some further detail on the two big broker upgrades this morning.
RBC Capital Markets has initiated coverage on Xero with a $45 price target and an "outperform"recommendation.
The broker sees Xero's EBITDA margins improving to 24.1 per cent in 2021-22, from negative, which should support an expansion in EBIT and net profit margins. "Longer term" RBC believes the cloud accounting company is capable of delivering EBITDA margins in excess of 40 per cent.
Management and the product get the tick of approval, and the visibility over growth (more than 10 years of "high growth" ahead) means the stock is not expensive at current levels on the broker's numbers. It is currently trading on 12 times 2017-18 enterprise value-to-sales, but only 6.6 times for 2019-20.
Top line, Xero is on track for 33.3 per cent compound annual revenue growth to 2021-22 driven by subscribers, mostly in Australia and NZ but eventually the UK and the US will be necessary contributors.
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