Xero and TPG are two interesting ASX 200 shares.
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The S&P/ASX 200 Index (ASX: XJO) shares in this article could be interesting ideas to look at.
Businesses in the ASX 200 might be market leaders in their category in Australia or even the world.
Here are two that might be worth thinking about:
TPG Telecom Ltd (ASX: TPG)
TPG is one of the largest telecommunications businesses in Australia. It’s the combined business of the old TPG as well as Vodafone Australia.
It’s currently rated as a buy by five brokers including Morgans.
Morgans believes that the short-term TPG share price decline is a possible opportunity, with a price target of $7.17. That suggests the potential upside is more than 25% over the next 12 months.
Over the last six months the TPG share price has fallen 22%.
TPG management said that the business is building momentum, continuing its merger integration plans, its 5G mobile network is on track to reach scale in the top six cities by the end of the year. It will begin offering 5G fixed wireless services in this half year period.
The ASX 200 share has made solid progress on merger integration activities and is targeting $70 million of cost synergies across the group in 2021, which excludes the contribution from fixed wireless services and revenue synergies from cross-selling.
While the business is in a stronger position to respond to aggressive competition in the market and mitigate headwinds, it will continue to be impacted by global travel restrictions, NBN margin erosion and the new RBS levy.
Morgans has projected that TPG is trading at 21x FY21’s estimated earnings.
Xero Limited (ASX: XRO)
Xero is a cloud accounting software ASX 200 share with a global subscriber base.
The company is growing at a healthy double digit rate in all of its major markets. In FY21, Australian subscribers grew 22% to 1.15 million. The UK saw subscriber numbers increased 17% to 720,000. New Zealand subscribers went up 14% to 446,000. North American subscribers rose 18% to 285,000. The rest of the world subscribers saw 40% growth to 175,000, with the largest growth in South Africa and Singapore.
A global subscriber base means that Xero has a larger total addressable market.
Xero continues to invest in its product as Xero balances short-term customer needs and investing for the long-term. Product spend increased from 31.4% of operating revenue in FY20 to 36.7% in FY21.
The ASX 200 share has been making acquisitions to improve its offering to clients. Recent names include Planday, Tickstar and Waddle. A key trait of the Xero offering is a large ecosystem of services and tools for business owners and accountants.
Xero CEO Steve Vamos said in the release of the FY21 result:
The past year has brought home to many people in small business the need to understand in real-time their financial position and how it may change. The value and importance our customers place on their subscription and connection to the broader Xero community is increasing.
In FY21, Xero saw operating revenue rise 18% to NZ$848.8 million, with annualised monthly recurring revenue increase 17% to NZ$963.6 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) went up 39% to NZ$191.2 million in FY21, demonstrating operating leverage.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Xero. The Motley Fool Australia owns shares of and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.