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Why the Xero (ASX:XRO) share price outperformed in March

The Xero Limited (ASX: XRO) share price was a positive performer in March and charged notably higher. Here’s why investors were buying…
The post Why the Xero (ASX:XRO) share price outperformed in March appeared first on The Motley Fool Australia. –

A young woman smiling and looking happy, indicating a positive share price movement on the ASX market

The tech sector may have underperformed last month, but that couldn’t stop the Xero Limited (ASX: XRO) share price from surging higher.

The cloud-based business and accounting platform provider’s shares climbed a solid 7% over the period.

This compares favourably to a 1.8% gain by the S&P/ASX 200 Index (ASX: XJO).

Why did the Xero share price charge higher last month?

Investors were fighting to get hold of Xero shares last month after it announced two major acquisitions.

The first was the acquisition of Planday on 4 March for up to 183.5 million euros (A$284.2 million).

Planday is a leading workforce management platform provider with more than 350,000 users across Europe and the UK. Its platform simplifies employee scheduling, allowing businesses to forecast and manage their labour costs.

Commenting on the acquisition, Xero’s CEO, Steve Vamos, said: “The acquisition of Planday aligns with our purpose to make life better for people in small businesses and their advisors. Planday’s workforce management platform helps small businesses to respond to the rapidly changing nature of work. Planday also addresses the growing need for flexibility and rising compliance demands within the workplace.”

Second acquisition

On 24 March, Xero announced the acquisition of Tickstar for up to 90 million Swedish kronor (A$13.6 million).

Tickstar is a Sweden-based e-invoicing infrastructure business that allows organisations such as Xero and its customers to connect to a global e-invoicing network. This enables faster and more secure transactions.

Xero’s Chief Product Officer, Anna Curzon, commented: “The acquisition of Tickstar is an important step in our strategy to help small businesses digitise more of their workflows and get paid faster using cloud-based technologies. As more governments around the world adopt e-invoicing, Tickstar’s technology will help our customers comply with existing and future legislation and realise the many benefits that e-invoicing brings.”

The response

These acquisitions appear to have gone down well with analysts at Morgan Stanley.

Last week, the broker retained its overweight rating and lifted its target on the Xero share price to $140.00.

In addition, analysts at Goldman Sachs responded to the Planday acquisition by reaffirming their buy rating and $157.00.

Goldman said: “We see the transaction as a potential meaningful step for XRO in (1) providing a beachhead for core accounting expansion in Scandinavia and Continental Europe where Planday currently operates (we previously estimated Denmark/ Norway/ Sweden / Germany and France have a combined subscriber/revenue TAM of 6.2mn/NZ$1.5bn), (2) building out its App ecosystem (post Waddle, Hubdoc etc.); and (3) driving Planday penetration through Aus/NZ/Other subscribers.”

Where next for the Xero share price?

The Xero share price may have outperformed in March, but based on Goldman Sachs’ price target, it could still go meaningfully higher from here in the future.

Xero is currently trading at $130.93, which means potential upside of 20% over the next 12 months.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Xero (ASX:XRO) share price outperformed in March appeared first on The Motley Fool Australia.

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