Xero shares soar after Morgan buys

Shares in internet-based accountancy software company Xero spiked 17% yesterday on the back of a $2 million investment by Trade Me founder Sam Morgan, which boosted his stake to almost 5%.

Xero shares were initially up 1c to $1.41, but on opening yesterday they spiked a further 17%, up 24c, to trade around $1.65 before easing to $1.60, giving the company a market capitalisation of $141 million.

Xero listed in June 2006 and in its initial public offering in 2007 raised $15 million from 1167 shareholders then in March 2009 raised a further $29 million. Its share price during the past year had a low of $1.30 and high of $1.70.

Craigs Investment Partners broker Peter McIntyre said Mr Morgan's $2 million investment gave the company "a confidence booster", prompting about 55,000 shares to change hands, but he noted there were few sellers in the market.

"Xero is an up-and-comer; one of the growth shares on the New Zealand exchange," he said.

Xero had posted net losses of $8.45 million and $6.75 million last full financial year and the year before respectively.

However, Mr McIntyre highlighted Xero had doubled its customer base, trebled revenue, held cash and bank balances at more than $21 million and was forecasting to break even later next year, after its result for the full year to March 2011.

"They have had high marketing costs and expensive software, but now they are getting customers on board and concentrating on growth," Mr McIntyre said.

In mid-June Xero reported it had accumulated a customer base of more than 20,000, having earlier announced operating revenues were more than $3 million for the 2010 financial year, tripling those of the 2009 financial year.

Mr Morgan, who sold Trade Me to Fairfax media group for $750 million in 2006, bought 1.4 million Xero shares at $1.45, at a 4c premium to the previous day's price, from company founders Hamish Edwards, Rod Drury and chief operating officer Alastair Grigg.