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MYOB IPO and ASX listing unlikely to weigh on Xero: ForBarr

01 Apr 2015

The arrival of MYOB Group, the Australian accounting software firm, on the Australian Stock Exchange is unlikely to weigh on the dual-listed rival Xero's share price, says and analyst for sharebroking firm Forsyth Barr.

The Melbourne-based firm yesterday announced its initial public offer, as it looks to raise total proceeds of between A$831.7 million and A$833.8 million to pay down debt, which stood at A$435 million at Dec. 31. Shares have an indicative price range of A$3 to A$4 apiece, which would give the company a total enterprise value of A$2.34 billion to A$2.69 billion.

Blair Galpin, a ForBarr research analyst says the offer was long rumoured and that it was unlikely to weigh on rival Xero's share price.

"It's been well-known and it's no surprise to the market that it is actually happening," Galpin said. "The real question that there will be is: how successful is the IPO?"

Majority owners of MYOB, Bain Capital, aren't selling any shares but will reduce their stake to 57 percent from 95 percent through dilution following the issue of new shares. The private equity firm's shares will be held on escrow after the offer until it releases its 2015 annual results next February.

Unlike Wellington-based Xero, which is foregoing profits as it invests in growth with a focus on the US market, MYOB plans to pay a dividend within a year of it being listed, with a payout ratio of between 60 percent and 80 percent. In the year ending December, MYOB expects a pro forma annual net profit of A$45.4 million, which strips out one off items, up from a pro forma historical result of A$28 million the previous year. Its statutory result for the year ending December forecasts a loss of A$43.9 million.

"MYOB is Australasian focused, so they're not spending to try and grow in the UK and US markets," said Galpin. "MYOB has been around for quite some time and had a complete product set so it's been selling products for quite some years. Xero is still building up new products and investing more and more in its core products and pipeline."

Shares of Xero have gained some 49 percent this year, in large part owing to US-based institutional shareholders investing $147.2 million of extra capital, and more than doubling the firm's cash on hand to around $180 million. The solely cloud-based accounting software firm wants a million customers, and is targeting growth in the US market where it seeks market share among an estimated 29 million small-to-medium sized business owners. The extra cash may be used for a possible US IPO, as well as further acquisitions of smaller software-as-a- service businesses, chief executive Rod Drury said in February at the time of the announcement.

Xero announced this week that it had 200,000 paying customers in Australia and is rolling out an integrated payroll product.

On the NZX, the stock fell 0.5 percent in morning trade to $23.98.

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