Weekly Reports | Sep 05 2025
In Brief returns with two technology companies investing for future growth and the AI trend, while a QSR favourite is riding better consumer spending.
-XeroCon Brisbane 2025 highlights Melio acquisition, AI assistant JAX, and US payments push
-Collins Foods' KFC sales accelerate as Australian consumers perk up in FY26
-Macquarie Technology data centre growth hinges on IC3 Super West amid FY26 earnings pressure
By Danielle Ecuyer
This week's quote comes from ANZ Bank
"Speaking at the Shann Memorial Lecture on 3 September, Governor Bullock noted that the Q2 household consumption print was “a little stronger” than expected, and if this trend continues, “there may not be many interest rate declines left to come”.
"At this stage, we still expect the RBA to cut the cash rate by 25bp in November."
Xero embarks on embracing payments disruption and AI-user enhancement
Accountancy platform operator Xero ((XRO)) is undertaking a major diversification of its business model with the acquisition of Melio, a B2B payments platform in the US. Once integrated (the acquisition is due to be completed in November), the goal, as highlighted by Wilsons, is to disrupt traditional payments transactions in the US which currently still centre around cheques and old-style over the counter banking.
Take a five seconds pause and think about this for a while. Does this sound like outdated and crazy, or what? (Not the Xero acquisition, the status of US banking).
At the recent Brisbane XeroCon with some 3,000 attendees plus 5,000 online, the company outlined a suite of updates for users and investors.
Melio and Xero are targeting to replace a portion of the US$16trn in annual B2B payments with a simplified offering via a “sophisticated, agile platform” where customers can save both time and money. Both a subscription and transaction fee will be charged to monetise the platform. Melio’s focus has been on Accounts Payable, but with every client who signs up, the Accounts Receivable service will be offered.
The company also outlined how Melio, led by Matan Bari, the CEO who is coming across to Xero, has achieved over 300 feature upgrades delivered after over 1,000 one-to-one conversations with A&NZ-based Xero customers.
US competitor Intuit has to date been successful in bundling financial and accounting services.
Under the stewardship of its CEO, Sukhinder Singh Cassidy, Xero has rationalised its subscriber base by removing ‘long idle’ subs and moved to a more price-reliant business model.
In FY21, total revenue advanced 18%, made up of volume growth of 20% and -2% detracted from price. In contrast, 1H25 revenue grew 21% composed of 10% volume growth and 11% price growth. Wilsons views the switch to price increases to underpin top-line growth as well overdue.
While concerned price reliance was becoming too significant to generate longer-term growth, Wilsons admits to underestimating the value being added to support the price rise and the corresponding price rises from peers.
On the first point, Xero has added 300 feature upgrades over the last year at a rate of 30 upgrades a month.
Building on the upgrades, RBC Capital points to demonstrations provided of how Xero’s AI assistant, JAX (Just Ask Xero), which is still in beta phase, can be an intuitive “business companion”. Management is seeking to “supercharge” JAX, RBC reports, via a new partnership with OpenAI.
The service will be designed to answer both SMB-specific accounting queries as well as help with general financial queries through accessing external information, including tax rules and market interest rates, to assist with making better real-time decisions.
Xero also launched Partner Hub, with Xero Practice Manager (XPM) practices receiving early access in November and all other practices by early 2026. This is aimed at bringing all partner tools into one place, including collating all apps in Xero’s ecosystem to streamline compliance workflows.
Concerns arising from the possible introduction of US bank data fees were allayed, with management tempering expectations around cost impacts, which are expected to be “immaterial” at this stage. Equally, management suggested there are levers to pull, if needed.
FY26 opex guidance as a percentage of revenue was reiterated around 71.5%, with that ratio lower in 2H26 than in 1H26. The medium-term guidance to “more than double group revenue from FY25-FY28” and to return to a Rule of 40 by FY28 was reconfirmed. Wilsons doesn’t envisage ‘hockey-stick’ growth to achieve FY28 revenue, rather a more ‘linear’ growth progression.
No earnings forecast impacts were deemed apparent at the presentations. The analyst continues to rate the stock Overweight with a $217.26 target price. RBC Capital’s target stands at $187 with a Sector Perform rating.
FNArena’s daily monitored brokers have a consensus target price of $213.167 and all six have a Buy-equivalent rating.
RBA rate cuts fuel improved consumer demand and KFC sales
After a bumpy twelve months for quick service restaurants operator Collins Food’s ((CKF)) share price, this week's AGM update, including same-store sales and total growth for the first 18 weeks of FY26, has triggered another rally for the shares.
Like other consumer-facing companies, the QSR operator has experienced an uptick and acceleration in same-store sales growth across all three of its trading regions.
The KFC franchise in Australia represents 7% of the global network, and Collins has a weighted exposure to QLD and WA. Canaccord Genuity highlights these two states are experiencing economic tailwinds from housing wealth effects and buoyant local economies.
Morgans highlights same-store sales growth of 2.3% year-to-date, above consensus of 2%.
As evidenced by Australia’s 2Q25 GDP data this week, which came in higher than expected due to a pickup in the private sector and consumer spending post RBA interest rate cuts, Collins seems well positioned with its large earnings exposure to a more confident Australian consumer.
Management reconfirmed normalised net profit after tax growth guidance for FY26 of “low-to-mid teens”, and Canaccord’s updated earnings forecasts are aligned with guidance on the back of estimated same-store sales growth of 2.7% for FY26, a rise of 2.2% on the prior estimate.
Noting Collins has an essentially mature network with under 3% network growth annually, the company has been challenged to generate volume growth in recent years. The analyst does, however, commend management on pricing to handle costs and cost pressures. Volume growth remains the outlying factor which can impact forecasts in both directions.
Overseas, management is expanding the store footprint considerably, aiming for 40-70 new stores against the current 20. Canaccord views the strategic goals for expansion as “sound”. In the near term, investment spending in Germany will outweigh the earnings returns, which may weigh on cash flow. Gearing levels for Collins are seen as manageable.
The decision to exit Taco Bell in Australia, subject to details such as terms, costs and exit options, is seen as a positive.
Canaccord makes minor earnings forecast changes and sees net profit after tax growth at 14% (normalised 2%) compared to low-mid teens as management guided.
FY27 net profit after tax growth of 6% is flagged by the analyst, with 46 new German stores over the five years from FY26-FY30 and 28 new Australian stores from FY26-FY28.
Buy rating remains, with an uplift in target price to $10.85 from $9.65.
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