8 April 2021

Xero Purchases Invoicing Technology provider Tickstar 

Accounting software provider Xero Ltd (ASX: XRO) has announced the acquisition of Tickstar, an electronic invoicing infrastructure business which allows Xero customers to connect to a global e-invoicing network. 

The purchase aligns with Xero’s strategic priority to drive the adoption of cloud accounting globally. Tickstar’s technology provides Xero customers in Australia, New Zealand and Singapore access to an established e-invoicing network that enables faster and more secure transactions.

Tickstar, established in 2007, is based in Stockholm, Sweden. Xero intends to leverage Tickstar e-invoicing infrastructure services to both existing and new customers, alongside existing consulting services.

Total consideration for the purchase is 150 million SEK, which is approximately $22.5 million Australian. 50 percent of the purchase is being paid in cash and 50 percent in Xero Ltd shares. Of the total cost 40 percent is paid upfront and 60 percent in subsequent earnout payments. Completion is expected by 30 June which is the end of Xero’s first quarter of the 2022 Financial Year.

Xero provides an accounting software platform for small businesses and had 2.45 million subscribers globally as indicated by its business update of 12 November 2020. Readers should look up Xero on ASX 200 and proceed to its announcements including financial and other important information.

Xero’s strategy is to reinvest income in growing its business subscriber base; it is a growth stock rather than an income stock. Xero’s increase in business subscriber numbers has been impressive. The acquisition of Tickstar follows closely upon the acquisition of workforce management platform Planday. Both are relatively small compared to the size of Xero but should fit well. Acquisition is likely to be more economical than developing these add on services internally.

Xero Annual Results

Xero is incorporated in New Zealand and has a financial year ending on 31 March. Xero’s full year results are due to be announced on 13 May 2021.

Disclosure

I own Xero Ltd shares in my family superannuation fund and investment portfolio.

Mad Paws Ltd May Have Too Much Business Risk

Mad Paws had a recent IPO and listing at 20 cents per share with last trade on 26 March 2021 at 24 cents after initially trading higher up to 29 cents.

Mad Paws hopes to capitalize on the increase in pet ownership during the Covid-19 pandemic. No figures are available in Australia, but anecdotal evidence from veterinary practices and the visible evidence of people walking their dogs suggest a significant surge in Australian pet ownership.

Mad Paws is an embryonic business, having generated a loss of $2,788,542 in 2019, a loss of $2,188,019 in 2020 and half year loss to 31 December 2020 of $6,380,024 leading up to its IPO. The IPO raised $12,000,000. $5,600,000 of convertible notes were issued on 23 March 2021 which were converted to ordinary shares on IPO.

Mad Paws indicates that its four main business services will be pet care, pet food sales, pet insurance sales and pet health services. 

This looks to me to be a business with substantial risk and strong competition in several segments of business from veterinary practices, boarding kennels, dog groomers and pet barns as well as being labor intensive. It may continue to struggle to make a profit and be capital consuming.  It would not be surprising if the price on first day of listing turns out to be the long term high. I will not be buying shares in it.

ARB Strategic Collaboration with Ford

Ford Motor Company has announced a strategic collaboration with ARB which will develop a full suite of aftermarket accessories for the new Ford Broncos 4WD vehicle. ARB engineers have worked closely with Ford to provide a comprehensive suite of accessories which will be distributed through one thousand Ford dealerships in North America, allowing Broncos to be accessorized, modified and personalized to consumer needs.

It is too early to tell whether this is a small or large step forward for ARB which has for many years designed accessories specifically to fit a range of 4WD vehicles as they are released. What it adds is greater distribution in North America.

I own ARB shares in our family superannuation fund and investment portfolio.

Superannuation: SMSF pitfalls

As a guideline, SMSFs should only be started if, on commencing, there is a probability of a couple having $500,000 in superannuation including existing balances to rollover and anticipated contributions in the current financial year—and if there are many years of future contributions anticipated before likely retirement. At this point, the costs in running an SMSF should become progressively cheaper than managed or industry superannuation funds.

A too-frequent pitfall has been to commence an SMSF on the prompting of a real estate salesman who can show a potential sales target how to purchase an investment property or two by starting an SMSF with a modest balance rolling over existing superannuation and taking out a loan against the property(s) inside the fund. Naturally the salesman can introduce you to people who can do the set up and arrange the loan. The individual finds themselves with an SMSF with low net balance and low income geared residential rental property and no clear investment strategy. Gearing works best for taxpayers with a high marginal tax and Medicare levy rate. Currently the highest rate is 47 percent. Negative gearing inside an SMSF with a maximum tax rate of 15 percent is a poor strategy. Buying low net rental yield residential property, particularly apartments off a plan inside superannuation, has been a poor investment strategy compared to owning a quality share portfolio with much lower acquisition and disposal costs.

Since the capital gains tax concessions applying to many small businesses including premises were introduced it has been more tax effective long term for most dentists, veterinarians and small business owners to directly own and gear premises personally rather than purchase via a superannuation fund. In this way they can build up their super fund balances to permitted pension account limits of $1,700,000 per person after 1 July 2021 and have the ability to rollover a further substantial amount from the profit on sale of active business assets at retirement. This potentially provides the best of two sets of legislation. The rules are complex and expert advice is required but beware of off-the-cuff accounting advice to purchase premises inside a super fund. There are exceptions—one being to avoid a too-large debt on a home upgrade by selling premises to a super fund and utilizing the capital released to fund the home upgrade—but this should only be advised where a resulting home loan would be of a magnitude that could not be paid off quickly.

A significant benefit of SMSFs is that they encourage the members to become far more financially literate by carefully studying the financials of companies before investing in them but beware of advisers who recommend an array of managed funds with significant internal management expense ratios.

Best wishes to all readers

Graham Middleton