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UPDATE: Xero responds to price inquiry as growth stocks fall

UPDATE: Xero responds to price inquiry as investors shun growth stocks

(Updated to include Xero price inquiry and response)

By Suze Metherell

June 24 (BusinessDesk) - Xero has responded to a stock market operator price inquiry after the cloud-based accounting software firm and Pacific Edge both fell to eight-month lows in morning trade as investors freed up cash for upcoming listings by selling growth stocks.

The stock market regulator issued a 'please explain' notice to Xero over a 22 percent, or $6.31, decline in its share price since June 16 to an eight-month low $23 at 11 am today. The stock has "historically been subject to significant volatility as a result of its tightly held share price," and Xero complies with continuous disclosure rules, the Wellington-based firm's chief financial officer Ross Jenkins said in a letter to the regulator.

"Since the $180 million capital raise at $18.15 in October 2014, Xero's share price has been on a rapid upward trend, in part driven by increased global investor exposure and the inclusion in various large global indices," Jenkins said. "In March/April this year, the market saw a substantial general re-rating of software-as-a-service stocks, which impacted Xero's share price."

Xero pared its morning losses and was recently down 4.3 percent to $24.80. The Wellington-based cloud accounting software firm has fallen 46 percent in the past three months, from an intraday record of $45.99 in early March, and was one of a group of growth-orientated stocks under pressure today. Dunedin-based biotech company Pacific Edge declined 6.2 percent to an eight-month low of 76 cents and has plunged 49 percent in the past three months. Outside the benchmark index, security software firm Wynyard Group dropped 1.8 percent to $2.14.

"All the growth stocks continue to be chasing the same pool of investors with all the new listings coming on the market as well," said Bryon Burke, head of equities at Craigs Investment Partners. "The issue with the growth stocks is, what are they worth when they're coming down when there is no yield and no PE (price to earnings ratio)?

"There are a lot of growth stocks around and they seem to be losing favour at this stage and there are more coming onto the market and that seems to be where the money is heading, to the new ones," Burke said.

Serko debuted on the NZX today at $1.10 before sliding 9 percent to recently trade at $1. The online business travel booking company, raised some $17 million selling 15.5 million of new shares at $1.10 apiece, while a further 4.5 million existing shares worth $5 million were sold into the offer. The Auckland-based company closed its public pool early and said those investors may receive fewer than the number of shares requested because of strong demand.

Gentrack, which develops utilities and airports software, lists tomorrow in a $99.1 million initial public offer, selling shares at $2.40 apiece.

Other companies set to list on the NZX include, Scales Corp on July 26, while IkeGPS released its prospectus yesterday.

Meanwhile Hirepool, which was due to list on the NZX stock exchange next month has, pulled its listing after 64 percent owner, Australian private equity firm Next Capital, has abandoned plans to sell shares in a $262 million initial public offering after concern from institutional investors that on market support for shares of the unprofitable equipment rental company wouldn't be strong enough.


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