Major US investor an 'endorsement' of Xero - Drury

Xero chief executive Rod Drury. New Zealand Herald Photograph by Dean Purcell

US investment giant Fidelity Investments has taken a 5.4 per cent stake in accounting software developer Xero in a move the New Zealand firm's boss, Rod Drury, says is a solid endorsement of the company's prospects.

Boston-based Fidelity, which holds roughly US$1.7 trillion in mutual fund assets, purchased 6.9 million Xero shares at prices ranging from $21.61 to $15.84 a piece between September 25 and December 4, according to a substantial security holder notice filed with the NZX today.

The Wellington-based technology firm's stock has taken a hammering this year, plunging from a record $45.99 in March to close as low as $15.85 on October 30.

In addition to a global sell-off of growth-focused stocks, Xero shares have also been hit by investor disappointment over the company's North American growth.

Drury said Fidelity was seen as one of the world's most sophisticated investors.

"Everyone wants to have them on their [share] register," he said. "While there has been a lot of people talking down Xero, it's really interesting that they've been building up their position. That would seem to be a pretty good endorsement for our long-term prospects."

Drury said other international funds, which he wouldn't name, were also buying up Xero stock.

While Xero is active in four main markets - New Zealand, Australia, the United Kingdom and US - its North American prospects are the main focus for the market.

Xero added 8000 US customers in the six months to March 31 this year, but that growth slowed to only 4000 new US clients in the six months to September 30, prompting downgrades from equity analysts.

In October the company reported annualised revenue of $132.3 million, an 87 per cent increase on the same time a year earlier.

Xero, whose shares recently traded at $16.18, posted a $24.5 million loss for the six months to September 30, compared with a $17.1 million loss in the same period of 2013.

Fidelity has also built up a more than 9 per cent stake in NZX-listed, Christchurch-based healthcare distributor Ebos Group.