Xro - xero

[winner69]

Interesting so many investors don't understand in this case, it doesn't matter at all as far as the XRO shares are concerned. No wonder the knee jerk reaction.

I too was wondering what this discussion was all about

[Oliver Mander]

I too was wondering what this discussion was all about

ok, I'll bite.
Please educate me.

The below picture is the example that shows the hypotheticals. Basically, XRO value remains the same in real terms, but the NZ$ moves (either way) against the AU$.
it assumes that no other exchange rates move - just the AU$/NZ$ cross rate. An extreme example, but highlights the point.
XRO.PNG

XRO's value hasn't changed - still doing what it does. But as an NZ$ investor, wanting to repatriate my cash at one point, I am exposed to translation risk - specifically between the AUD and NZD - that wasn't there before.

So - where is the error in my logic?

[mikeybycrikey]

ok, I'll bite.
Please educate me.

The below picture is the example that shows the hypotheticals. Basically, XRO value remains the same in real terms, but the NZ$ moves (either way) against the AU$.
it assumes that no other exchange rates move - just the AU$/NZ$ cross rate. An extreme example, but highlights the point.
XRO.PNG

XRO's value hasn't changed - still doing what it does. But as an NZ$ investor, wanting to repatriate my cash at one point, I am exposed to translation risk - specifically between the AUD and NZD - that wasn't there before.

So - where is the error in my logic?

Imagine in this theoretical example that the only asset the company held was a NZD$4.3 B bank account. How would you then change the spreadsheet?

You seem to be thinking that with the company listed in Australia that the AUD share price is now fixed and it is your NZD conversion that will change. Instead it is likely the the AUD share price would rise/fall but your NZD converted value would stay the same.

In your example of the exchange rate going to 0.8, the value of the company is still $4347 NZD, which converts to AUD3477. And the Aussie share price would become AUD25.12.

Make sense?

Obviously reality is more complex than that since much of Xero's income comes in AUD (and GBP and USD, etc)

[Oliver Mander]

Imagine in this theoretical example that the only asset the company held was a NZD$4.3 B bank account. How would you then change the spreadsheet?

The trouble is that it doesn't hold a $4.3bn NZ$ bank account - I've already said in an earlier post that if its revenue was generated in NZ$, then I would agree with you that there is no additional currency risk.
But that's not the case - it generates sod all of its revenue in NZ. Its value is generated by income from a basket of currencies. That's actually a red herring though (herring is much loved by this particular cat incidentally).
The real issue is that the enterprise value is expressed by a tradeable share on the ASX - in AU$. So the only risk I am worried about is what happens between the AU$/NZ$ so I can get my cash back.

[longy]

I am excited that they finally making profit.... for the first time. I am excited as to where to from here for them.

I have got out on NZX a couple of days ago and bought it back on ASX yesterday. My brain could not digest all the details re fuss over exchange rate De-listing stuff but seemed logical to me at that time.

[winner69]

I am excited that they finally making profit.... for the first time. I am excited as to where to from here for them.

I have got out on NZX a couple of days ago and bought it back on ASX yesterday. My brain could not digest all the details re fuss over exchange rate De-listing stuff but seemed logical to me at that time.

Net LOSS was $21m

Cash burn of $34m

[mikeybycrikey]

The trouble is that it doesn't hold a $4.3bn NZ$ bank account - I've already said in an earlier post that if its revenue was generated in NZ$, then I would agree with you that there is no additional currency risk.
But that's not the case - it generates sod all of its revenue in NZ. Its value is generated by income from a basket of currencies. That's actually a red herring though (herring is much loved by this particular cat incidentally).
The real issue is that the enterprise value is expressed by a tradeable share on the ASX - in AU$. So the only risk I am worried about is what happens between the AU$/NZ$ so I can get my cash back.

Yes but this is the current situation too.

Why is the EV suddenly fixed in AUD just because the listing is on the ASX? Surely the EV should be in AUD now given your logic. In which case you already have this problem, it's just that someone as already doing the AUD conversion for you.

You seem to be conflating two different currency issues, one of which already exists.

[Oliver Mander]

Yes but this is the current situation too.

Why is the EV suddenly fixed in AUD just because the listing is on the ASX? Surely the EV should be in AUD now given your logic. In which case you already have this problem, it's just that someone as already doing the AUD conversion for you.

You seem to be conflating two different currency issues, one of which already exists.

EV is in whatever currency the entity is listed on, or in whatever currency the investor wishes to receive it in.
I don't think I'm conflating the two currency issues - the one that already exists is the global diversity of their revenue. No problem with that.
The new one (the one that doesn't exist - yet) is valuing the entity in NZ$, as a NZ$ investor.

agree its no different to investing in other companies on ASX - but then, as investors, we're prepared to take the translation risk between the countries exchange rate.

[777]

I never knew investing was so complicated. Sometimes a bit of gain on the currency and sometimes a loss.

[winner69]

EV is in whatever currency the entity is listed on, or in whatever currency the investor wishes to receive it in.
I don't think I'm conflating the two currency issues - the one that already exists is the global diversity of their revenue. No problem with that.
The new one (the one that doesn't exist - yet) is valuing the entity in NZ$, as a NZ$ investor.

agree its no different to investing in other companies on ASX - but then, as investors, we're prepared to take the translation risk between the countries exchange rate.

Last paragraph the crux of the matter for you.

So your choice is to either hold your XRO.ASX when they transfer them over there (and live with the ups and downs of the $) or sell your XRO.NZ and pat yourself on the back for making heaps.

I think there’s a lot more other things that going to drive the value of XRO than a one off translation impact - like XRO operational and financial performance, will Aussies think more highly of XRO because it’s on the ASX, etc etc.

To me I reckon XRO shares will be worth a lot more in the future than they are now and where they are listed is a minor distraction.