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Accounting software going to cloud: analyst

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The Australian and New Zealand accounting software industry will move from desktop to cloud-based products over the next decade, Morningstar analyst Gareth James says.

In the small and medium-sized enterprise (SME) segment, MYOB had a leading 60% market share or 1.2 million customers.

However, the majority of those customers used desktop products and about 600,000 paid MYOB no recurring fees.

Annual business failures and formations created market churn of about 10% a year, driving the adoption of cloud-based products he said.

As competitors gained market share, Morningstar expected MYOB’s total SME customer base to shrink by about 2% a year during the next five years.

Most MYOB desktop customers were likely to move to MYOB cloud products as a result of brand loyalty, product familiarity and integration with business processes, driving the paying-customer growth of about 5% a year, Mr James said.

"We expect MYOB’s strong brand and proven track record to be key factors driving customers’ decisions regarding cloud products, particularly as client data is hosted remotely, connects with bank accounts and is a key component of business administration."

Morningstar had increased its fair value on MYOB by 3% to $A4.05 ($NZ4.48) per share following the announcement the company intended to buy Reckon’s practice management division for $A180million.

MYOB was thought to be paying slightly below a fair price for the business, although much of the value could only be realised by MYOB, due to its ability to extract cost and revenue synergies.

The transaction was expected to be approved by the Australian Competition and Consumer Commission and the New Zealand Commerce Commission, Mr James said.

The competition had increased significantly in the Australian and New Zealand accounting software markets in recent years as the emergence of cloud-based software had increased overseas providers’ ability to compete and had enabled the rise of Xero as a competitor.

New Zealand’s Xero recently announced it would delist from the NZX and have a sole listing on the ASX.

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Article Credit: Otago Daily Times

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