Xero’s Full-Year Result Provides More Evidence Competition Is Structurally Higher Overseas

We have increased our fair value estimate for narrow-moat-rated Xero by 9% to AUD 50.00 per share, despite significantly cutting our near-term earnings forecasts following the full-year result. Although the short-term earnings outlook is worse than both we and the market previously expected, we don’t believe the long-term outlook has materially changed. Our fair value increase reflects the positive time value of money effect on our financial model combined with slightly higher long-term earnings forecasts, as subscriber growth is tracking ahead of our expectations. However, at the current market price of AUD 112 per share, we continue to believe Xero is materially overvalued.