The two quality ASX shares in this article want to become global leaders in their respective categories.
Businesses that have big goals and focused management have a good shot of producing outsized returns for investors.
These two quality ASX shares could be worth a look for the long-term:
City Chic Collective Ltd (ASX: CCX)
City Chic is a business that is aiming to create a ‘world of curves’. It’s rated as a buy by the broker Morgan Stanley, which has a share price target of $4.75 for the retail business.
The brokers of Macquarie Group Ltd (ASX: MQG) also rate City Chic as a buy. One point for Macquarie was that the company can utilise the Avenue platform in the US and that American sales could rebound after COVID-19 impacts subside.
City Chic had a positive first half of FY21 with continued elevated levels of online sales – there was growth of 42% off a high base, with 73% of total sales coming from the online channel. In FY20, 65% of sales were through online. In the first half of FY20, 53% of sales were from online.
The company saw double digit growth in the first six months of FY21 with total sales rising 13.5% to $119 million and statutory net profit after tax (NPAT) going up 24.8% to $13.1 million.
One highlight was the entry into the UK market with the acquisition of market-leading plus-size brand Evans for $41 million. The ASX share only bought the online assets and wholesale business of Evans. In the financial year to August 2020, the Evans website had 19 million visits and generated £23.1 million of sales, whilst the wholesale business made £3 million of sales.
It’s looking to expand the UK presence, grow in Europe with marketplace partnerships and continue to look for other acquisition opportunities.
Xero Limited (ASX: XRO)
Xero is another ASX share that has a very strong future.
The quality ASX share is building a global subscriber base in many different countries.
Its half-year result showed strong growth – Australian subscribers grew by 21% to 1.01 million, UK subscribers went up 19% to 414,000, New Zealand subscribers rose 13% to 414,000, North American subscribers grew 17% to 251,000 and the ‘rest of the world’ subscribers went up 37% to 136,000. Rest of the world numbers saw notable growth in South Africa and Singapore.
One of the reasons why Xero may be able to do so well over the long-term is that subscribers tend to stick around for a while – which creates good economics with a software as a service (SaaS) model as Xero’s gross profit margin is so high at 85.7%. Reported monthly recurring revenue churn was 1.11% in the period.
Xero is investing heavily for long-term growth and addressing customer needs. It spent almost $140 million on product development in the first half of FY21 – up 29% year on year.
The company is also making acquisitions that it believes will improve the offering for subscribers or accountants. Planday and Waddle are just two of the names it has bought in recent times.
Xero finished its FY21 half-year presentation with the following statement:
Xero is a long-term orientated business with ambitions for high-growth. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest in new products and customer growth, and respond to opportunities and changes in our operating environment.
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More reading
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- Xero (ASX:XRO) share price down 23%, is it a buy?
- 2 of the best ASX growth shares to buy immediately
- ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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